The Trade War Is Eroding America's Soft Power
The debate over free trade should include more than the costs of Trump's tariffs versus the value of cheaper stuff.
The direct cost of President Donald Trump's trade war will be borne by American consumers and businesses—of that, there should no longer be much debate.
But trade wars also come with indirect costs and unforeseen consequences. Some of those show up on balance sheets in the form of lower profits, losses in the stock market, or stagnating wages. Some are best counted under the Christmas tree, where higher prices might mean fewer toys (as the president now admits) and other goodies that make life a little more joyful, as tariffs squeeze wallets and reduce discretionary income.
Others are trickier to sum up, but that doesn't mean they don't exist.
"The administration's trade policy sends a message to the world: America is an unreliable ally that sees you only as a source of wealth; and if you don't have wealth, you'll pay for it," writes Iain Murray, senior fellow at the Competitive Enterprise Institute, in an essay recently published in The Daily Economy, a blog run by the American Institute for Economic Research.
Murray's essay gets at a point that seems underappreciated in the ongoing debate over tariffs, trade deficits, and Trump's (possibly unconstitutional) wielding of tariffs as part of an effort to overhaul the global trading system that he believes is unfair to the United States. The benefits of free trade for America go beyond tangible things like the "cheap stuff" that nationalists on the political right disdain. And the costs of blowing up the global trading system will include the loss of American "soft power" and the geopolitical influence that comes with it, Murray warns.
"The United States' role as a linchpin of this system has enhanced its position as the pre-eminent global power," writes Murray. "Yet the new administration's curious tariff policy threatens all of this, for no discernible benefit."
Trump views trade as a zero-sum game in which one country wins and one country loses every time two individuals agree to exchange goods across national borders. He believes that America is losing those transactions and that trading less would make the country better off. A few weeks ago, while trade with China was grinding to a halt due to Trump's massive tariffs on imports from that country, the president said America was "making, in a certain way, $1.1 trillion" by not engaging in commerce.
That's economically foolish, but it's also geopolitically myopic. That's because American soft power rides on the back of the global trading system. American investment and purchasing power help build factories and lift people out of extreme poverty. For the countries that benefit from all that, American interests are first and foremost. Take away the benefits of trade, and the rest fades too, warns Murray.
Higher tariffs and reduced global trade "kills US soft power with these nations and leaves a geopolitical vacuum into which US rivals like China will expand," he writes. "High tariff rates on south east Asian countries, for example, will exacerbate the drift of those countries towards the Chinese sphere of influence that has been happening in the wake of trade uncertainty since the first Trump administration."
