Free Trade

Trump Is Standing on the Precipice of a Real and Serious Trade War

The trade war that seemed improbable for weeks is now slipping closer to inevitable. The first major deadline comes at midnight.



With the announcement Thursday morning that the White House will press forward with a plan to impose tariffs on steel and aluminum from Europe, Canada, and Mexico, it seems that President Donald Trump has taken another step towards the precipice that turns threats and posturing into open conflict.

As the contemporary world's great powers have edged closer to a major trade war, I've thought a lot about something historian Christopher Clark writes in The Sleepwalkers: How Europe Went To War in 1914, his excellent account of the run-up to the First World War.

The First World War, most Americans probably know, started because of the assassination of an Austrian archduke, Franz Ferdinand.

Like many historical facts, that's only partially true. Ferdinand was gunned down in the streets of Sarajevo on June 28, 1914, but troops did not mobilize for battle until the final week of July and it was mid-August before the real shooting began. The intervening time was filled with a flurry of diplomacy as various factions encouraged or dissuaded the war. From the perspective of June 28, though, it's not at all clear that a conflict was inevitable. Indeed, even a month later it could have been avoided, as officials from Germany and England—neither of which were directly connected to the war's inciting assassination and had at least some reasons to avoid a bloody conflict—nearly reached an agreement in mid-July that likely would have prevented the outbreak of a continent-wide conflagration.

In other words, the assassination alone did not make war happen. But at some point in the six weeks following Ferdinand's murder, the prospect of war tipped from possible to unavoidable.

"The outbreak of war was the culmination of chains of decisions made by political actors with conscious objectives," notes Clark. "The war was in fact 'improbable'—at least until it happened. From this it would follow that the conflict was not the consequence of long-run deterioration, but of short-term shocks to the international system."

The analogy between World War I and the looming trade war only goes so far, of course. Thankfully, there are not millions of lives at stake in the decisions that will be made in Washington, Ottawa, Brussels, and Berlin over the next few weeks—though the stakes are still quite high in other ways. Like in 1914, a trade war between the major economic powers of the globe in 2018 would threaten to smash an international system that has, despite some obvious failings, worked well for the better part of half a century.

A trade war, if we'll have one, is not the result solely of the Trump administration's economic nationalism or its assassination of domestic businesses. Trump trade policies are another short-term shock to the system, and there is plenty of blame to be shared by China and others.

Still, the inciting incident for the coming trade war will be remembered as Trump's announcement on March 5 of new tariffs on all steel and aluminum imported into the United States. That kicked off the period of diplomacy, with the White House agreeing to exempt several major U.S. trading partners from those tariffs until May 1, with the goal of reaching bilateral trade deals before then. In some cases, that worked. Deals are in the works with Argentina, Australia, Brazil, and South Korea.

But even an extension until June 1 did not bring Canada, Europe, and Mexico to the negotiating table. Instead, all three threatened to escalate the conflict by slapping retaliatory tariffs on American goods. Elsewhere, the Trump administration has so far fumbled its attempts to use tariffs to bully China into trade concessions.

"As has been the case every day for the past 16+ months, the U.S. and global economies remain exposed to the whims of an unorthodox president who precariously steers policy from one extreme to the other, keeping us in a perpetual state of uncertainty," says Daniel Ikenson, director of the Center for Trade Policy Studies at the Cato Institute, a libertarian think tank, summing up the current state of affairs.

Now, the clock is really ticking. The exemptions for Canada, Europe, and Mexico will expire at midnight, Commerce Secretary Wilbur Ross announced.

The trade war that seemed improbable for weeks is now slipping closer to inevitable.

European Commission President Jean-Claude Juncker called the tariffs "unjustified" and said the EU will prepare countermeasures, CNBC reported. According to The Wall Street Journal, the European response will target some $3.3 billion in U.S. exports. American agricultural exports are likely to take the biggest hit, which is bad news for farmers who depend on export markets because America literally grows more food than it can consume.

Trump has preemptively responded to the expected European response by threatening additional tariffs on imported cars. That move prompted one German officials to wonder whether the United States is abandoning free trade.

Mexico plans to impose retaliatory tariffs on American steel, pork, apples, grapes, and cheese, among other things. The New York Times said the goods were chosen to have an impact on rural Republican congressional districts in the hopes of applying pressure to Trump's political allies.

Investors and businesses will get hit too. The Dow Jones industrial average fell sharply Thursday after news reports that tariff exemptions for Canada and Europe would expire. Steel-using industries have reported significant price hikes since Trump first announced the tariffs in early March, and a projection released by the Trade Partnership, a Washington-based pro-trade think tank, tariffs are projected to cause 146,000 net job losses—five jobs lost for every job gained—even without accounting for possible retaliation from China, Europe, and other nations.

All sides are still talking to each other and there's faint hope for a last second deal, but that looks increasingly unlikely. "Every country's primary obligation is to protect its own citizens and their livelihoods," Ross said in Paris after meeting with E.U. officials this week, according to the Journal. That doesn't sound like a man who is backing down.

The tariffs on steel and aluminum, don't forget, are being imposed on the administration's vague and unfounded claims that foreign metal somehow undercuts America's national security. The White House is already gearing up to make a similarly laughable argument for tariffs on cars. But how tariffs on European cars and Canadian steel will address the administration's worries about a trade imbalance with China—something that isn't even really a problem—remains completely unclear.

That lack of clarity—or, more accurately, honesty—between the Trump White House and America's top trading partners is compounded by the administration's decision earlier this week to pull the rug out from under a proposed deal with China. After first threatening to impose tariffs on $50 billion of Chinese imports, the administration said less than two weeks ago that those tariffs would be on hold, before reversing course again this week—apparently to the surprise of Beijing.

Negotiating for peace becomes incredibly difficult once trust is lost. A state of uncertainty makes improbable, unnecessary conflicts more likely. The First World War, concludes Clark, became inevitable not due to an assassin's bullet but because "a profound sundering of ethical and political perspectives eroded consensus and sapped trust."

Trump is walking the world to the precipice of another major conflict. It will be less bloody, but no less tragic for its pointlessness.