Trade Wars Are Destructive. Of Course Trump Wants One.

.. as with so many other policies he has supported, he appears to have little understanding of this one.

.. Many White House aides, including Mr. Trump’s chief economic adviser, Gary Cohn, appeared to be caught off guard by the decision; on Wednesday, Mr. Cohn had warned that he might resign if Mr. Trump went through with the tariff plan.

.. The stock market fell sharply after the announcement because investors feared that the move was the first of several that could result in escalating disputes

.. The steel and aluminum tariffs are ostensibly aimed at punishing China, which has been driving down prices for those commodities by producing far more metal than the world can use. But Mr. Trump’s move will have a limited effect on China because much of the steel and aluminum the United States imports actually comes from allies like Canada, Brazil, South Korea and Mexico.

.. the move could hurt American businesses that use these metals, including auto and construction companies

.. If Mr. Trump were truly interested in getting China to reduce its excess production, he would have worked with the European Union, Canada, Japan, South Korea and other countries to put pressure on Beijing. Those nations tend to be closely aligned with the United States and have also been hurt by China’s mercantilist economic policies.

.. threatening to retaliate forcefully against the new Trump tariffs. They could do so by bringing cases against the United States at the World Trade Organization, or by doing what Mr. Trump did and unilaterally imposing new tariffs on American exports like soybeans and Boeing planes.

.. Canada imports more American Steel than it exports to the United States, giving it the ability to hurt the very industry Mr. Trump claims to want to help.

.. Chrystia Freeland, says Canada buys about half of American steel exports.

.. for every new job at a steel mill or aluminum smelter that is created by this trade decision, the country could lose as many or more jobs at businesses that use those metals, which will now cost more. This is one of the reasons that trade wars are, in fact, not easy to win.

.. Mr. Trump clearly sees trade as a zero-sum game.

.. He and some of his most protectionist advisers, including Peter Navarro, think that if China and Mexico sell the United States more things than they import from America, they are winning.

 

The Macroeconomics of Trade War

diverting demand equal to 3 percent of GDP from foreign to domestic products would not increase US output by 3 percent relative to what it would have been otherwise, let alone the 4.5 percent you’d expect if there’s a multiplier effect. Why? Because the US is close to full employment.

.. a 3 percent rise in output relative to trend would reduce unemployment about 3 times that much, 1.5 percentage points. And that just isn’t going to happen.

.. What would happen instead is that the Fed would raise rates sharply to head off inflationary pressures (especially because a 20 percent tariff would directly raise prices by something like 3 percent.) The rise in interest rates would have two big effects. First, it would squeeze interest-sensitive sectors: Trump’s friends in real estate would become very, very unhappy, as would anyone who is highly leveraged (hello, Jared.)

.. Second, it would drive up the dollar, inflicting severe harm on U.S. export sectors. Greetings, farmers of Iowa!

So protectionism wouldn’t do very much to reduce the trade deficit, even if other countries didn’t retaliate, and would inflict a lot of pain across the economy. And that’s without getting into the dislocations caused by disruption of supply chains.

.. Add in the fact that other countries would retaliate – they’re already drawing up their target lists – and the fact that we’d be alienating key allies, and you have a truly terrible, dumb policy idea. Which makes it quite likely, as I see it, that Trump will indeed follow through.

Trump insists ‘trade wars are good, and easy to win’ after vowing new tariffs

Trump is imposing the steel and aluminum tariffs by utilizing legal provision that allows the White House to take steps if it can argue that imports threaten the national security of the United States.

Trump’s comments on Thursday and his Twitter posts on Friday made no mention of national security but, instead, referenced what he said was an unfair dynamic where the U.S. buys more from other countries than those nations buy from the U.S.

.. Canadian officials said the steel and aluminum tariffs would be unacceptable and that they would retaliate if it affected their exports to the United States. A number of other countries also expressed alarm. German politician Bernd Lange, who heads the trade committee at the European Parliament, shot back: “With this, the declaration of war has arrived.”

.. Trump believes that tariffs, even on steel produced by other countries, will help revive the U.S. steel and aluminum industries.

.. trade wars are unpredictable and escalate quickly.

.. Gary Cohn tried to prevent Trump from pursuing the tariffs but was bulldozed by other advisers who thought the changes were necessary and would fulfill promises Trump made while campaigning

.. The three-largest U.S. trading partners are China, Canada and Mexico.