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Trade Wars Are Stupid, and Hard to Win
I was fortunate enough last year to attend what I believe was the last political forum participated in by the late, great Charles Krauthammer. It was at a Weekly Standard event in Colorado Springs, where he was interviewed on stage by Bill Kristol. As the first question, Kristol asked Dr. Krauthammer for his general thoughts on President Trump (who at that time had only been in office a few months). Krauthammer didn't mince words in his response.
It shouldn't have come as a surprise to anyone in the audience that Krauthammer was not a fan of the president. It had been crystal clear from his commentary on television and in his writing throughout the 2016 election and beyond. But at this particular event, Krauthammer described his critical assessment in a far more detailed and comprehensive manner. Among the big points he hit on was his belief that Trump was a completely unprincipled individual, including on public policy and political philosophy... except for in one specific area: U.S. trade deficits.
Krauthammer, based on Trump's rhetoric over the years, suspected that this was perhaps the one political issue that our president — for whatever reason — genuinely believed in and viewed as a legitimate threat to the United States. On this issue, Krauthammer himself was aligned with the vast majority of economists, fiscal conservatives, and free-market proponents who view trade-inequality as an arbitrary measure of economic strength, and protectionism as a hindrance to economic growth.
Still, if Krauthammer was right about Trump (and I suspect he was), it would explain why the president has been so determined to stick with his unilateral trade war against other nations — a venture that has thus far resulted in little more than higher costs for U.S. companies and consumers, and a widening (not a reduction) of our trade deficits.
Earlier this month, the Commerce Department reported that the U.S. trade deficit increased to $54 billion in September (the fourth straight month of increase and a seven month high). Other numbers from the report: Imports hit a record high ($218 billion). Imports specifically from China (Trump's primary opponent in the trade war) increased, pushing the trade gap up by 4.3% to $40.2 billion (the highest on record).
Meanwhile, the latest casualty at home (among a growing list of American companies) has been GM. The automobile manufacturer recently revealed that Trump's steel and aluminum tariffs have cost them roughly $1 billion. They just announced layoffs of 14,000 employees and the shut-downs of five North American manufacturing plants. Predictably, the announcement and decisions have compelled our president to attack and threaten the company on Twitter (like he's done in the past with others including Harley-Davidson).
In other words, the president is again upset with an American company for having the gall to take measures it didn't want to have to, in order to deal with losses incurred by the president's ill-advised policy.
Now, to be fair, there are other factors contributing to GM's woes, including the volatile nature of the automobile industry, but when a government policy forces a company to lose a billion dollars, big job losses are the inevitable result.
On the agricultural front, farmers are taking a beating too, particularly in the Upper Midwest.
According to the Minneapolis Federal Reserve, lower commodity prices have led to at least 84 family farms filing for bankruptcy this year. Diminished foreign markets from the trade war (U.S. soybean sales to China are down 94%) are a clear contributor, and despite President Trump pledging $12 billion in taxpayer-funded subsidies to farmers adversely affected by retaliatory tariffs (a move conservatives assuredly would have flipped out over under Obama), the president's massive government bailout has reportedly been of little help.
It seems pretty clear that President Trump hadn't a clue what he was getting himself into when he tweeted this statement last March:
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
And today, in another revealing tweet, Trump unwittingly bragged about how he has increased taxes on American consumers:
Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go. If companies don’t want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!
— Donald J. Trump (@realDonaldTrump) November 29, 2018
It's not China, after all, that added that money to the "coffers." It was Americans. And more government revenue doesn't "make our Country richer." It reduces private wealth.
One has to wonder what it will take for reflexive Trump defenders to stop repeating the tired old narrative that this is a killer negotiating tactic by our president, and that the industries currently being hurt by it will soon flourish beyond everyone's wildest expectations, thanks to his master deal-making skills. How many lost jobs will it take? How many factory closures and relocations to other countries? How many more tax-payer billions spent on farm subsidies? How high will the costs of goods need to get?
It's easy to say "look at the long-game" when the long game isn't really understood, even by our president who seems to qualify his tariffs differently each time he's asked about them. It's also easy to preach about "fairness" (as Obama often did, and just as subjectively) in pursuit of political agendas, when it's not your company and livelihood that are being needlessly brutalized by what is clearly an ego-driven war of choice.
While I have to believe that the U.S. will eventually get some small concessions from certain nations, like those we saw with the NAFTA negotiations, it's difficult to see how the outcome will justify or make up for the pain caused to Americans and American businesses within multiple sectors of our economy. Of course, Trump and his supporters will frame literally any foreign adjustment in trade policy — no matter how minuscule — as an epic and historic triumph for America, but at what price will it have come? And how badly will we have needlessly strained relationships with other countries (including key allies)?
But as of now, the Trump faithful continues to lend the president their blessing, like they have with larger federal deficits (set to rise back above $1 trillion in the near future). And if Krauthammer was right, and Trump's ego is more closely tied to this issue than any other, I can't imagine there could ever be a failure so deep, and a free-market intrusion so vast, that it would compel the president to rethink the wisdom of this escapade.
As National Review's Charles Cooke has pointed out many times, Congress has the power to take back some the executive powers that have allowed Trump to conduct this trade war. For the sake of American companies and consumers, they should do just that.
Will they? I won't hold my breath.