Free Trade

The Trump Administration Is Finally Admitting That Trade Wars Aren't Easy to Win

After overpromising the benefits and underestimating the costs, reality is starting to puncture the White House's messaging on trade.

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Speaking at the National Press Club this week, White House economic advisor Larry Kudlow touted one of the promised benefits of the newly rewritten trade deal between the United States, Mexico, and Canada: more American jobs.

"They came out with about $68 billion increase in [gross domestic product] and I think seven or 800,000 jobs," Kudlow said, referring to the U.S. International Trade Commission's recent analysis of the United States–Mexico–Canada Agreement (USMCA). "I'll call it a million just to round it up," Kudlow added, according to Politico.

He should have rounded down.

Shortly after Kudlow finished speaking, the White House's National Economic Council had to issue an embarrassing statement correcting the record. The trade commission's analysis of the USMCA estimated that the new deal would create 170,000 jobs—not 700,000 or 800,000 or 1 million.

Everyone makes mistakes from time to time, and 170,000 new jobs are nothing to sneeze at. But the incident was another reminder of how reality is starting to puncture the Trump administration's fantasy world in which tariffs are paid by other countries and "Trade Is Bad." Roughly a year after Trump gleefully launched a trade war with the promise that it would be "good and easy to win," it is now increasingly obvious that the president and many of his top economic advisors oversold the benefits and underestimated the costs of trade policies that have caused America to clash with not just Canada and Mexico, but China, Japan, Europe, and other major trading partners.

We may get some job growth if the USMCA, which rewrites the decades-old North American Free Trade Agreement, gets approved by Congress, but most studies of Trump's other trade policies have found economic damage. Tariffs are draining $1.4 billion out of the U.S. economy every month, according to a comprehensive review published in March by a trio of economists from the Federal Reserve Bank of New York. New jobs created in steel and aluminum manufacturing have come at a steep price, and the trade deficit that Trump vowed to reduce has continued growing.

Facing that mounting pile of evidence, the Trump administration is now quietly pivoting away from the "easy to win" framing. Kevin Hassett, chairman of the White House's Council of Economic Advisers, tells Bloomberg that the economic pain caused by tariffs is the bitter pill that must be swallowed to improve the economy in the long run.

"We've had these very bad trade deals, and we are taking the medicine to improve them," he says.

That's a far cry from how the Trump administration represented the trade barriers when they were first implemented. In the weeks after Trump slapped tariffs on steel and aluminum imports, Commerce Secretary Wilbur Ross made the rounds on cable news with a prop can of Campbell's Soup, which he showed while laughing off concerns about how the tariffs would affect American businesses. If tariffs increased the price of steel by 25 percent, that would amount to "a tiny fraction of one penny" in the price of a can of soup, he argued.

Kudlow's flub of the USMCA jobs numbers might have been an honest mistake, but Ross was deliberately trying to mislead viewers about basic economics. He wasn't reassuring Americans that they would have to endure bitter medicine—he was promising, literally, that the economy would feel no pain.

What has the administration gotten in return for all that disinformation? Not a whole lot. The USMCA has been yet to be approved by Congress, and the fact that it delivers significantly less of an economic boost than the Trump administration originally promised—along with more protectionism and a sunset clause that provides an uncertain future for North American trade—may make it a difficult sell even to members of the president's own party.

Meanwhile, this week has brought more indications that Trump's bellicose trade stance has failed to improve America's relationships with Europe and Japan. A new study found that tariffs on European-made steel and aluminum have had a smaller impact than expected on producers there, mostly because "they simply wind up paying the tariffs of 10 percent on aluminum and 25 percent on steel and passing the extra cost on to American consumers," The New York Times reports.

And the Trump-appointed U.S. ambassador to Japan got egg on his face after complaining that Japan has not done more to lower import barriers for agricultural goods from the United States—even though the Asian nation has recently completed a new trade deal with several of its neighbors. The problem? That trade deal Japan signed was the Trans-Pacific Partnership (TPP). America had been a member of the TPP until Trump abruptly yanked the country out, but the 11 other countries continued negotiating and inked the deal last year.

In other words, America agriculture was offered better access to Japan, but Trump turned it down.

Finally, there's the news this week that Trump's first volley in the trade war—a tariff on imported washing machines, imposed in January 2018—backfired spectacularly. Not only had the tariff increased the price of washing machines for U.S. consumers, but American-made washers increased in price as well (despite not being subject to the tariff), as did clothes dryers (which were also not subject to the tariff).

The washing machine tariff is credited with raising a paltry $82 million for the U.S. Treasury and creating about 1,800 jobs—at a cost of $1.2 billion for consumers.

Is all this merely a long series of bitter pills that must be swallowed, or is it an indication of a failing set of trade policies? It's unclear how much longer the administration will maintain the charade of pretending that tariffs are helping American businesses and consumers, but this week seemed to show that the mask is starting to slip.

NEXT: First Amendment Challenge to L.A.'s Requirement That Contractors Disclose Ties to NRA

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  1. Of course trade wars are easy to win – you just change the definition of “winning”. Hell, we’ve been winning the war in Afghanistan for a whole generation now, are we sick of winning yet?

  2. Tarriffs are theft. Fuck Donald Trump. If the dems weren’t such theiving bastards themselves, they wouldn’t need to make up Russian scandals to impeach him, they do it for his violation of his oath to uphold the constitution. Congress is the only governing body that can levy taxes/tarriffs. Fuck our government. Goddamn theives the lot of em.

    1. ” Congress is the only governing body that can levy taxes/tarriffs.”

      Except Congress passed a law explicitly delegating the authority to levy tariffs to the President.

      1. Oh right I always forget about the delegation clause. What Article is that in again?

  3. And never forget that Trump once mentioned the TPP as a stupid trade deal that Obama was making with China. Now, sure, the fact that Obama was making the deal is a good reason to believe it was a stupid deal, but the fact that it was a trade deal against China makes it worth considering that the cost/benefit analysis has to include the benefit of wooing trade away from China, of paying off our “friends” to do less to contribute to China’s economic well-being. And Trump apparently never thought of the strategic value of the trade deal outside of the trade dollars. And, of course, the idiot thinks trade is a zero-sum game which puts the lie to his claim to being a great negotiator, akin to claiming you’re a great baseball player because you can score lots of touchdowns. If you don’t even know that negotiations involve win/win propositions, you don’t know shit about negotiating.

  4. I opposed all of Trump’s trade wars. I opposed his renegotiation of NAFTA. I opposed his trade war with China. That being said, it appears that Canada, China, Mexico may have all capitulated to Trump’s demands.

    “Talks starting next Tuesday “will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement,” the White House said in a statement. Chinese officials led by Vice Premier Liu He planned to then head to Washington for discussions starting on May 8, the White House said.

    The two sides are seeking to have a draft agreement by the end of May, a person familiar with the matter said, asking not be named discussing the private talks. Officials want to announce during Liu’s visit that they’ve agreed to a deal and details of a signing summit, people familiar told Bloomberg News earlier.”

    https://www.bloomberg.com/news/articles/2019-04-24/u-s-china-officials-to-resume-trade-talks-tuesday-in-beijing

    We may hear that a deal has been reached in which China capitulates to all of Trump’s demands as soon as May 8.

    The question of whether Trump’s demands are wise or whether the agreement Trump reached is better than what we had before is still open, but if you want to criticize Trump’s trade policies, I wouldn’t go with the argument that his trade wars aren’t easy to win–not when it looks like he’s on the cusp of winning them.

    If Trump “wins” both the NAFTA renegotiation and the trade war with China, do you really think the observation that it wasn’t as easily won as he though is about to be a sticking point with voters in the rust belt? He won the White House because he promised voters in Wisconsin, Michigan, Ohio, and Pennsylvania that he’d initiate trade wars over NAFTA and with China.

    The casualties of World War II weighed heavily on voters, but much less so after we’d won the war. Your observations about washing machines won’t count for shit if and when Trump announces a new trade deal with China and claims victory. Meanwhile, the people of the Midwest haven’t had it so good in terms of unemployment numbers and salary growth since the 1960s. Who should the people of the rust belt believe, TDS victims or their own lying eyes?

  5. Nothing at all has been gained. China is not going to capitulate to demands. Not even close.

    You opposed all of it. You were right in that. The rest is just NAFTA 2.0

    Trump has no clue. Idiot as are his fanboy supporters.

    Ohio, Pennsylvania Wisconsin, Michigan, he does not come here, he has no investment here. All he wants is adulation.

    The people of the north coast. They have adjusted to a new economy. Many have left. Trump has nothing to do with it.

    1. Do you have any links for that stuff about how nothing was gained?

      I’ve been linking reports from Reuters, WSJ, and Bloomberg that have been all reporting the same thing for weeks–that the Chinese are coming around on intellectual property and forced technology transfers is a major gain–even IF IF IF we lost on other things.

      I opposed it, but just because I oppose something doesn’t mean I need to pretend I was right. If Trump gets something and it’s worth the price we paid, then that’s what it is whether I agree with starting trade wars or not.

      In the meantime, stocks keep rallying on news that there’s been progress on the new trade deal. Am I supposed to ignore that? Do you have a link? What is the stock market getting wrong with the news? Has there really been no progress on intellectual property, forced technology transfers, and allowing American companies to operate in China without a forced partnership?

      Do you have a link for that?

  6. The tariffs were a concession to the blue collar bases in the rust belt. Suprise: if Lunchbucket Joe gets nominated they’ll like him even better.

  7. If we followed Adam Smith, tariffs would be a lot higher.

    “It will generally be advantageous to lay some burden upon foreign industry for the encouragement of domestic industry, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the borne market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.”

    –Adam Smith

    1. On Retaliatory tariffs as a negotiating tactic.

      “There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles, which are always the same, as to the skill of that insidious and crafty animal vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.”

      — Adam Smith

  8. The tariffs were a concession to the blue collar bases in the rust belt. Suprise: if Lunchbucket Joe gets nominated they’ll like him even better.

    https://www.thenexthint.com/

  9. Boehm does not want America to even try to get better terms for its managed trade policy let alone get to free trade.

    Boehm and the propagandists undermine any attempt to negotiate with trading partners then say “see, we told you Trump wont win”

    1. Nothing like China, Canada, Mexico, and the EU judging American public opinion and support by watching US propagandists in the media.

      Why negotiate with the USA? According to the media, most Americans hate everything about America and want Socialism.

    2. Trump at G7: US president calls for end to tariffs and trade barriers
      Briefing reporters before he left the town of La Malbaie, in Quebec province, Mr Trump denied that the G7 summit had been contentious.

      “No tariffs, no barriers. That’s the way it should be. And no subsidies. I even said, ‘no tariffs’,” the US president said, describing his meetings with fellow Group of Seven leaders as positive “on the need to have fair and reciprocal trade”.

      “The United States has been taken advantage of for decades and decades,” he continued, describing America as a “piggy bank that everyone keeps robbing”.

  10. One of the things you cucks can’t comprehend is this: If the guy on the other side of the table knows you can’t follow through with a threat, they won’t take it seriously.

    The truth is we could get China to do ANYTHING we demanded, tomorrow. Why? Because we could put their economy in a depression overnight. We can replace them with Vietnam, India, etc for importing cheap shit… There is no other market on earth that can soak up their exports.

    The only reason we haven’t got them to drop barriers is because big business likes it the way it is, and leftist politicians like distributing the wealth away from 1st world nations. Period. The commies and the monied classes both benefit from screwing over 1st world nations working class, so they do.

    I’m no commie, but as a capitalist pig I DO believe in driving the hardest bargain you can with people you do business with… We have the power to get anything we want, but we don’t use it because the above groups don’t want it to happen.

  11. I might not be the sharpest Republican in the drawer, but if President Pantone 159 says tariffs put billions of dollars in the U.S. treasury and everybody wins, including farmers and housewives but not those yellow devils across the water, well this Republican believes him, yessir!

  12. […] The Trump administration finally is admitting that trade wars are not “easy to win” (although I wish that Eric Boehm would have more explicitly called out Kevin Hassett for the latter’s economically misleading claim about trade deals). […]

  13. it’s good that Administration admits about not easy to win the trade war.

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