Trump's Impulsive Trade War Is Lousy Economics and Worrisome Politics
President's hasty new "trade war" will damage the American economy while continuing his process of removing tariff-reduction from two-party politics.
Huh. So it turns out when you elect an impulsive, anger-prone mercantilist who campaigned and won the presidency on a platform to stop "letting" America's international trading partners get away with "murder," he might impulsively launch a trade war without so much as properly consulting his own staff.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore-we win big. It's easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
Trump's policy maneuver…was announced without any internal review by government lawyers or his own staff, according to a review of an internal White House document.
According to two officials, Trump's decision to launch a potential trade war was born out of anger at other simmering issues and the result of a broken internal process that has failed to deliver him consensus views that represent the best advice of his team.
On Wednesday evening, the president became "unglued," in the words of one official familiar with the president's state of mind.
Trump's proposed 10 percent aluminum tariff, as Eric Boehm laid out this morning, would inflict material damage on the robust domestic beverage industry, among several other sectors, as well as on each and every American who buys a product containing aluminum. (This Virginia Postrel piece from last November does a good job explaining how much.) The 25 percent tariff on steel, too, would be a self-inflicted economic injury. The Dow Jones Industrial Average dropped 420 points yesterday (1.7 percent) partly in response to the announcement, and finished today down an additional 71 after volatile trading. This Yahoo Finance headline sums things up well: "Economists pan Trump trade policy as 'terrible,' risks ending economic expansion."
It is not new for a modern U.S. president to impose protectionist tariffs. Barack Obama did it with Chinese tires, costing American consumers an estimated $1.1 billion in return for preserving 1,200 jobs in the domestic tire industry. And as Steve Chapman has noted in these pages, "When George W. Bush imposed duties on foreign steel, experts concluded, he destroyed some 200,000 jobs in other sectors—exceeding the total employment of the American steel industry."
Trump's moves, coming on the heels of his recent tariffs on Chinese solar panels and imported washing machines, threaten to be far more ruinous, "the most significant set of U.S. import restrictions in nearly half a century," Edward Alden concluded over at the Council on Foreign Relations. That's in part due to the centrality of protectionism to both Trump's presidential campaign and his lifelong economic worldview. He really, truly believes that "trade wars are good, and easy to win," and that his commitment to this belief is part of why he won the presidency. That's a potent combination.
So is Republican malleability on what used to be a bedrock conservative principle. As Ilya Somin has noted over at The Volokh Conspiracy, Trump has dramatically shifted Republican public opinion on trade. And some high-up GOP types have been all too happy to change their spots: Never forget that then-Republican Party Chair Reince Priebus drew applause from the stage of the Republican National Convention for crowing that "Donald Trump wants to bring jobs back from overseas and hold companies who want to send them abroad accountable." With Democrats already tacking hard toward a Bernie Sanders-like approach on economic policy, tariff-reduction may be following deficit-reduction out the exit door of two-party politics.
The president has considerable latitude on trade policy, particularly when dressed up unconvincingly as "national security." If Trump really wants his trade war, Trump will get his trade war, even if every member of Congress was to spontaneously agree with Sen. Ben Sasse (R-Neb.) that "No trade war has ever worked." This was always a central objection to candidate Trump, one that many people who have long supported free trade found less persuasive than their antipathy toward his competitors.
Is there any possible silver lining to this lousy news? Probably not, but MSNBC's Stephanie Ruhle (whose show I guest on frequently) has reported from sources that Trump may change his mind if the stock market continues to tank. So it's possible that the president's impulsiveness may yet save us from the president's impulsiveness. That is what passes for economic policy hope in a Washington run by the Republican Party.