Free Minds & Free Markets

2018 Proved That Trade Wars Aren't 'Good and Easy to Win'

Regardless of the president's Twitter bravado, this year has provided a painful lesson in how tariffs grow government and hurt the economy.

Less than 24 hours after his administration announced plans to slap new tariffs on imported steel and aluminum, President Donald Trump was already preparing to declare victory.

The declaration that trade wars are "good and easy to win" may be one of the enduring moments of the Trump presidency, since it seems to perfectly summarize much of the current administration's ethos. It's an obvious oversimplification of an incredibly complex policy that was launched impulsively and backed by little more than the president's hubris and naivete.

As 2018 comes to a close, it appears Trump continues to believe that higher tariffs are in the best interest of the United States. For those willing to look a little closer, however, the past nine months provide a sturdy lesson in the economic costs, policy failures, and political dysfunction triggered by his tariffs. Indeed, the consequences of Trump's trade war can be grouped into four categories—and none of them, at this moment, appear to be positive outcomes for Americans.

First, and most obviously, there are the higher costs created by tariffs, which are really just taxes imposed on imported goods when they enter the country. Americans have already paid $42 billion in higher taxes due to tariffs, according to an analysis by The Tax Foundation. That works out to a decrease of $146 in after-tax income for middle class Americans.

Businesses that rely on steel and aluminum imports (along with manufacturing components made in China, another target of Trump's tariffs) have felt the brunt of the impact. The taxes on imported steel, for example, get passed along the supply chain to increase the purchase price of everything from cars and homes to beer kegs and industrial widgets. Trump's claims that China would pay for these tariffs are proving to be as empty as his promise that Mexico would pay for the border wall.

Caro / Lueger/NewscomCaro / Lueger/NewscomSecond, there are the knock-on economic effects of those tax increases. In the third quarter of the year (the first economic quarter during which the tariffs were fully deployed), more than one-third of the companies in the S&P 500 cited Trump's tariffs in earnings reports and calls with investors—including major American companies like Ford, Caterpillar, Harley-Davidson, and General Motors; the last of which recently announced massive layoffs that may have been caused, or worsened, by the sudden hike in supply costs. The Tax Foundation's analysis suggests that the tariffs will reduce the gross domestic product, a short-hand measure for the overall size of the economy, by about $30 billion while also depressing wages and costing more than 94,000 jobs.

More broadly, the tariffs may be contributing to the stock market's recent stumbles. The Dow Jones is down more than 1,000 points from where it was on March 1, when Trump announced the first round of tariffs, and down more than 1,500 points since June 1, when the steel and aluminum tariffs took affect.

Third, the tariffs have grown the size and power of the federal government. Trump has arguably abused his executive power in laying tariffs for supposedly "national security" reasons, despite his own admission (and that of his soon-to-be-former defense secretary) that they are not necessary for national security. But the bigger abuses of power have occurred within the administrative state, where Commerce Department bureaucrats have been empowered to hand out tariff exemptions for some businesses. Getting an exemption can be a lifeline for a company, but the process is murky, slow, and fraught with politics. American steelmakers have been accused of exerting influence over the exemptions, and there's no due process for businesses to appeal denials.

In short, the Commerce Department's implementation of Trump's tariff policy amounts to a huge expansion of government power over the independence of American businesses and the livelihoods of their employees. It's a far cry from the "open and transparent process" promised by Commerce Secretary Wilbur Ross when he announced the tariff exemption process in March.

Finally, the trade war has put American taxpayers on the hook for direct bailouts to American farmers harmed by the trade war. This is perhaps the ultimate example of how Trump's tariffs have turned into an own goal. Using a New Deal era crop insurance program, Trump has funneled more than $9 billion to farmers who have been unable to sell their goods to China due to retaliatory tariffs raised in response to Trump's tariffs. Soybean farmers have been particularly hard hit—the U.S. is the top global supplier of soybeans, but China has all but stopped buying American soybeans—but suppliers of cotton, dairy, and hogs have also received payments.

Trump has tried to frame these payments as him "making good on my promise to defend our farmers." But those farmers would be better off if they were able to sell their goods—like they used to do—rather than being bailed out by the same federal government that's also driving up their equipment and supply costs.

It's also worth considering what hasn't happened since the tariffs were imposed. Despite Trump's repeated assertions (which have now earned him a "bottomless Pinocchio" from The Washington Post's fact-checkers), there are not seven or eight new steel plants being built across the country. There's not even one—unless you count U.S. Steel making some upgrades to its main facility in Gary, Indiana.

Meanwhile, steel stocks have taken it on the chin since the tariffs were imposed—U.S. Steel's stock price has collapsed by more than 50 percent since early March. Aluminum manufacturers have added a mere 300 jobs since the protectionist tariffs were imposed, but American aluminum-consuming companies have paid more than $690 million in import taxes. Do the math on that one.

One major aluminum manufacturer, Alcoa, has actually sought an exemption from the tariffs that were meant to be protecting it from competition. It turns out that businesses that make aluminum also have to buy things made of aluminum—and those purchases are now more expensive.

There's also been no major breakthrough on trade with China. The rewrite of the North American Free Trade Agreement, which Trump has claimed as a major victory for his zero-sum view of the world, is far from a sure bet to make it through Congress. And the tariffs have heightened tensions between America and many of its key allies and trading partners, including Canada and Europe.

In the end, America may very well "win" the trade war—or, more likely, it may "lose" less badly than other countries. Still, it's plain to see that it hasn't been good, and it won't be easy to recover.

Photo Credit: Caro / Lueger/Newscom

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • A Lady of Reason||

    We need fair deals and have been cheated too long... At least Trump is trying to make our country more assertive...

  • $park¥ The Misanthrope||

    You' get a lot of love around here with comments like that. Especially from the little Tulpuppy that likes to follow me around.

  • a ab abc abcd abcde abcdef ahf||

    Which one, lc or J?

    There are a lot of idiots who seem to think libertarianism means using coercive government to restrict other people's liberty with trade restrictions, because nationalism! protectionism! and of course Trumpism!

  • I'm Not Sure||

    "We need fair deals and have been cheated too long..."

    You need someone to decide for you what you can buy at the store so you don't get cheated? Are you retarded, or what?

  • Kevin Smith||

    No, she needs someone to force everyone else to buy like her

  • Bronze Khopesh||

  • Leo Kovalensky II||

    Hahaha. Might as well just quote Trump's Twitter feed.

  • You're Kidding||

    When have trade tariffs ever resulted in a "win" for anyone?

  • Leo Kovalensky II||

    They are generally thought to be a win for the rent-seeking, domestic industry that they are supposed to be protecting from competition by arbitrarily raising prices. However in this case, one needs look no further than US Steel and Alcoa stocks to see that they've even failed at their nominal goal of boosting domestic steel and aluminum. Both down "bigly" since March.

  • Echospinner||

    As is Nucor . Shit

  • buybuydandavis||

    The US rose to superpower status on an explicit policy of protectionism through tariffs.

  • sharmota4zeb||

    I hope the trade war ends soon. Until then, excess soybeans can be pressed into soybean oil with medicinal qualities and sold in New Jersey.

  • Deconstructed Potato||

    I'll take 'TARIFFS' for $400 please, Alex.

  • Echospinner||

    Bottom line

    Trump is fucking up the economy.

    Why can't he just go play golf, screw porn stars, and have burnt steak dinners.

  • ChuckNorrisBeardFist||

    Yes, I mean he messed it up so bad it's be the best in history. It's horrible. We should be more like Obama.
    The only crappy thing Trump and GOP (which are gone) are doing is running up the debt.

    Good thing the Dems are coming in to show them how a pro does it

  • Echospinner||

    ".....close the Southern Border. Bring our car industry back into the United States where it belongs. Go back to pre-NAFTA, before so many of our companies and jobs were so foolishly sent to Mexico. Either we build (finish) the Wall or we close the Border......"

    That was today's shot of brilliance. I feel so much better.

    Yeah the man is an absolute genius.

    And now he has the Dems to deal with and why do you think that is?

  • ChuckNorrisBeardFist||

    I remember when Reason used to have reason. First, you are talking US side even if most of your 'factors' are misleading. How come you don't talk about the China side? You know in a war (I know Reason hates war) both sides suffer. The winner is the one that suffers the least. How is China doing? I know it was always ok for China to have tariffs on US goods coming in their country. Good times.

    Also, how come Reason never mentions that technology theft issue that is really at the heart of the trade war. Part of the trade war is wanting China to respect intellectual property more. I know a pipe dream but still.

    Boy, the TDS runs deep here now.

  • I'm Not Sure||

    "Part of the trade war is wanting China to respect intellectual property more."

    So- if someone steals stuff from you, the government should raise your neighbor's taxes? Brilliant idea!

  • JoeBlow123||

    China is using all of their asserts (business, military, government, everything) to assert themselves. If you want to keep living in an environment that values buck passing do not be surprised when authoritarian governments in the mould of the Chinese become the norm.

  • Ben_||

    There's a new deal with Mexico and Canada and ongoing negotiations with China and Europe. Trump is either right or wrong. It could go either way. We will know in 2019. The end of 2018 proves nothing.

    Pretending there's a completely arbitrary artificial deadline is just more Reason bullshit rhetoric. Your philosophy is generally right. You guys don't have to make such stupid arguments (except on open borders, there's no way you can argue that one any non-stupid way).

  • SimonP||

    There's a new deal with Mexico and Canada...

    Is there? None of the three countries has implemented this "deal," such as it is.

    ...and ongoing negotiations with China and Europe.

    Calling what's happening right now "ongoing negotiations" is a bit credulous. It's like saying negotiations with North Korea and Iran are "ongoing."

    We will know in 2019. The end of 2018 proves nothing.

    I can't seem to keep straight whether Trump's first two years are supposed to be the most productive in U.S. history or if he needs more time to work out final deals on any of a number of fronts.

  • buybuydandavis||

    A Tsunami of the Big Lie.

    Instead of admitting he's been wrong with every damn article he's written, he'll just pretend and pretend and pretend.

    But it seems that by the end even he realizes how absurd he's being:
    "In the end, America may very well "win" the trade war"

    Winning. Booming economy. Lowest unemployment since ever. Country after country giving the US better trade terms.

    Latest on Chinese Tariffs:
    China cuts tariffs on more than 700 goods in bid to open up economy and lower domestic consumer costs.


  • Tamfang||

    "Real trade war has never been tried."

  • buybuydandavis||

    The US rose to superpower status on an explicit policy of protectionism through tariffs.

  • ||

    No war is good and easy to win. However, if I had wanted Jimmy Carter back in the White House basically letting lobbyists for huge international corporations write our trade deals under the cover of the Fake News mainstream media triumphing each agreement as "Good for America" I would have voted for that peanut-brained nincompoop or one of his innumerable Democrat clones.

  • ||

    No war is good and easy to win. However, if I had wanted Jimmy Carter back in the White House basically letting lobbyists for huge international corporations write our trade deals under the cover of the Fake News mainstream media triumphing each agreement as "Good for America" I would have voted for that peanut-brained nincompoop or one of his innumerable Democrat clones.

  • Fred_PA||

    "Trump has funneled more than $9 billion to farmers who have been unable to sell their goods to China due to retaliatory tariffs raised in response to Trump's tariffs. Soybean farmers have been particularly hard hit"
    This one confuses me.
    If the Chinese don't suddenly stop consuming them, then all the Chinese tariffs do if shift Chinese purchases from U.S. suppliers (now taxed) to other suppliers not so taxed (let's say the Brazilians). But that means those Brazilian soybeans are no longer available to be sold to other, previous, non-Chinese consumers. Who must go into the market to find some substitute supply. Where they are likely to meet U.S. sellers looking for customers. To oversimplify; The Chinese now buy Brazilian beans, and Brazil's former customers now buy U.S. beans.
    Admittedly, the Chinese tax on soybeans will likely reduce their consumption a little. (Presumably, they were buying from us because we offered the cheapest supply, so now [Brazilian] soybeans cost a little more.) And frictions in rearranging supply-chains will add some costs and discourage some consumption among the formerly Brazilian customers.
    (And I think I remember from ECON-101 that food Demand curves are relatively inelastic.)
    Hence, my intuitive feeling is that these losses should be relatively small.
    From all the wailing, you would think we'd lost 100% of our former sales, not the 5% I would guess.

  • Fred_PA||

    Just looked up U.S. soybean exports to China: in 2017, they were $12.4 Billion. If most of those beans are still getting sold to *someone* , then Trump's $9 Billion subsidy to these farmers looks like a big-time windfall.

  • Texasmotiv||

    Ok take the next step. If you follow that logic, then who is getting hit the hardest? Who is paying for the subsidy?

  • ||

    Definition of a "Trump Libertarian": Anyone who supports Trump's actions 100%, even if the actions defy every libertarian principle, then justifies all the government interference with the economy and/or individual freedom by saying "We're Winning!" or "''Merica!" or some other stupid slogan blabbered by Trump at a campaign rally.

    Look, Trump has taken some good actions (reduction of business regulations, modest tax reform, modest criminal justice reform, judicial appointments, starting to bring troops home), but he has also taken some bad actions too (starting a tariff war with every country, advocating for a wasteful border wall, picking corporate favorites for "special" relief). True libertarians need to support the good and criticize the bad based on principles, not on some allegiance to a political actor.

  • buybuydandavis||

    Then how about you argue the principles, instead of the principals?

  • Cthulunotmyfriend||

    Exactly. And I admit while I don't like Trump, some of his policies have been good ideas. However, knee jerk allegiance or opposition is just silly.


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