The Messy Unintended Consequences of Trump's Trade War
It's like trying to plunge lasagna out of your kitchen sink.
In an interview that aired on 60 Minutes Sunday night, President Donald Trump reiterated his belief that America would "win" the trade war—er, battle…or skirmish—that his administration launched earlier this year.
The truth is that trade wars are much more complex than Trump's simplistic win-or-lose mentality suggests. "Winning" the trade war—whatever that even means—could come with major unintended consequences for the American economy. This should not come as a surprise. All governmental intrusions into the economy have unintended consequences, and these tariffs are a particularly potent intrusion into the free exchange of goods.
Take what's happening at Kent International Inc., a South Carolina–based bicycle manufacturer. The Wall Street Journal reports that Kent, which currently employs about 167 people, canceled plans to hire another 30 or 40 workers as part of an expansion of the plant. The culprit? Trump's tariffs, which subject imported steel to a 25 percent tax and have triggered sharp spikes in the price of both foreign and domestic steel.
Instead, the company is now planning to expand operations in southeast Asia, where Chinese-made steel can be imported without the extra taxes.
"We are not bringing jobs back to America with this thing," Kent CEO Arnold Kamler tells the Journal. "We are bringing jobs to different countries in Southeast Asia."
Does winning the trade war mean offshoring American jobs? That's probably not part of the president's plan.
Trump says the tariffs are a tool to bring China to the negotiating table and get it to stop engaging in unfair trade practices. In practical terms, the tariffs are forcing companies to rework supply chains, and that's not something the administration can control (nor should it try). As the Journal notes, some American companies are seeing increased revenue as manufacturers seek domestic suppliers to avoid import taxes. But those wins are counterbalanced by a difficult reality: that building things in America is now more costly, thanks to the tariffs.
A speaker assembled in Florida with Chinese-parts will be more expensive because of Trump's trade barriers, but the same speaker built in China and imported to the U.S. would be tariff-free, as the Journal notes. That's the rationale for the administration's continued escalation of the trade war. Last month, the White House targeted another $200 billion of Chinese-made goods, mostly finished products, with a new round of tariffs.
The unintended consequences of tariffs extend out in a variety of directions. Tariff-dodging is now a thing, for example. And the trade war may halt a joint Chinese-American project that was translating ancient Chinese texts into English.
All of which is to say: Trade wars are messy.
Messy like blasting chunks of leftover lasagna into your neighbor's apartment. That's the metaphor economist Austan Goolsbee used to describe the current situation during an appearance this weekend on NPR's Wait, Wait, Don't Tell Me. You really have to listen to the segment for the full effect, but the story involves a kitchen sink clogged with lasagna and a plunger loaded with explosive charges. Here's the key bit:
GOOLSBEE: And they lived in a—what in Chicago we would call a converted. It was a house. It had a wall down the middle. There were two identical apartments. And the drains did not just go straight down. They connected in a little Y.
GOOLSBEE: So every time he blew the bomb into the drain, it didn't go down the drain to the sewage. It just blew it to the neighbor. And so the next morning, that person comes over (mimicking doorbell), says, Bob, was there some kind of terrible plumbing catastrophe that happened?
And they go— He said, I'd like to show you my apartment. And all over the ceiling, over the kitchen, is my Aunt Trina's lasagna.
Trump is firing the plunger into the drain, repeatedly. And while he might win a victory over the lasagna that's stuck in the pipes, the White House's only plan for dealing with the mess in the neighbor's house is, apparently, to spend taxpayers' money to bail out farmers hurt by the trade war. There does not seem to be any plan to deal with the other consequences—like the jobs that could have been created at plants like Kent's in South Carolina but now will go to workers in Southeast Asia.
That's what tariffs do, says Goolsbee.
"You can blow the lasagna out of the steel drain. But when you blow it out of the steel drain, right onto the auto industry, Boeing, and all the others, it's all over the ceiling," he said. "And that's what's wrong with this. It ends up destroying thousands more manufacturing jobs than you're saving in the one where you're doing it."