Trump fires first shots in trade war

U.S. President Donald Trump last week announced that the United States would impose tariffs on steel and aluminum imports. The news was greeted with dismay by U.S. trading partners and experts, with many warning of retaliation and disastrous consequences for the global economy. Trump responded by tweeting that “trade wars are good and easy to win.” He is wrong on both counts. There are no good trade wars and there are no winners.

A mix of factors produced Trump’s decision to announce a 25 percent tariff on steel imports and 10 percent on aluminum imports. First, there is his belief that the U.S. has been taken advantage of by its trading partners; proof for him is its shrinking manufacturing workforce and its persistent trade deficits. The call for nationalist and protectionist trade policies is perhaps the only constant in Trump’s political statements.

Experts insist that his reasoning and logic are wrong — he ignores trade in services, manufacturing jobs have been lost for a variety of reasons, and a trade deficit is not a revealing indicator of economic health — yet other factors behind his announcement are more worrisome.

It was reported that Trump acted because he was angry and frustrated over events of the week — one of the most chaotic of his tenure, with all evidence highlighting dysfunction and scandal in the administration — which prompted him to give in to his long-standing desire to impose sanctions. This inclination was abetted by a breakdown in the White House decision-making process — triggered by the departure of aide Robert Porter — which prevented him from getting moderating advice. Topping that off was Trump’s desire to be seen as decisive and taking action on the trade front after being in office for a year and being blocked from doing so.

His surprise announcement — even his staff was unaware of what the president would say — was followed by a series of tweets in which Trump warned that he was prepared to impose trade restrictions on any country that he felt had an unfair trade relationship with the U.S. The response was predictable. International stock markets declined. The Dow Jones Industrial Index fell 1.7 percent with the news, closing down 3 percent for the week. The Nikkei average on the Tokyo market lost 2.2 percent of its value on the day, and European markets posted similar drops.

German politician Bernd Lange, head of the European Parliament’s trade committee, called Trump’s argument “absurd” and declared that “With this, the declaration of war has arrived.” Reports quickly followed that the European Union is considering tariffs of 25 percent on $3.5 billion in imports from the U.S, such as motorcycles, alcohol and blue jeans. Canadian Prime Minister Justin Trudeau, whose country is the biggest source of steel exports to the U.S., called the tariffs “absolutely unacceptable.”

Japan also expressed strong concern over the planned U.S. tariffs after American officials indicated that the measures would apply to all countries, including U.S. allies. In telephone conversation with U.S. Commerce Secretary Wilbur Ross, trade and industry minister Hiroshige Seko said steel and aluminum exports from Japan, a U.S. ally, does not damage U.S. national security in any way. Saying that Japanese steel and aluminum exports are important for both Japanese makers in the U.S. and the U.S. manufacturing industry, Seko warned that import restrictions are likely to affect employment and the economy in the U.S. Kosei Shindo, chairman of the Japan Iron and Steel Federation, warned that tariffs “will create a negative chain reaction affecting not only steel but also other products considered to have national security implications.”

Details of the announcement, to be announced this week, may blunt the worst fears of an impending trade war. Make no mistake, however: This is a ruinous decision. Trump may provide some temporary relief for U.S. steel makers, but he is punishing every downstream steel consumer. Their prices will go up and consumers will feel the pain. He has erased the benefits of his tax cut to ordinary Americans and experience suggests that job losses in steel-consuming sectors will exceed the number of jobs he will save. It is estimated that U.S. steel-using industries employ 6.5 million people, while steel makers employ only some 140,000. These calculations do not take into account the consequences of retaliation by U.S. trade partners.

The powerful negative reaction by U.S. trade partners, including its closest allies, Trump’s own Republican party, and experts, might result in moderation in implementation of the policy. If the reporting is correct and the president is guided by perceptions of his performance — rather than economic logic — then the prospect of a damning verdict in the November midterm elections could sober him and block his worst impulses. Nevertheless, it is troubling that this is the optimistic assessment of the president’s trade decision.

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