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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apaphotostwo061715 | Album / Tolo Balaguer/Newscom
(Album / Tolo Balaguer/Newscom)

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.