Trump’s Trade Wars Are Incoherent, Angry and Misguided

The president’s approach is based on a misguided understanding of how world trade works and risks hurting the us itself.

US President Donald Trump has single-handedly set fire to the global rules-based trade order that Washington was so instrumental in establishing after the Second World War. Picking fights with allies and economic adversaries alike, the president has begun to implement his ‘America First’ policy through the imposition of tariffs on steel and aluminum, and the threat of further protectionist measures.

That approach is not only based on a misguided understanding of how world trade works, it ultimately risks hurting the United States itself, writes Daniel Ikenson.

The us CONSTITUTION vests authority in Congress to collect duties and to “regulate commerce with foreign nations.” but over the course of the 20th century, Congress delegated some of that authority to the president through legislation. although the purpose was, ultimately, to facilitate the process of reducing tariffs, President Donald Trump has systematically weaponized a few statutes to serve a small-minded, protectionist, “america First” trade policy.

since taking office, Trump has misappropriated his authority to launch six investigations under three seldom-invoked trade laws. Five of those investigations have led to the president imposing or announcing tariffs on imports of more than 1,500 products (steel, aluminum, washing machines, solar-panel components, and, mostly, Chinese technology products) valued at about us$100 billion. a new investigation into whether imports of automobiles and parts constitute a national-security threat could lead to sanctions on another us$300 billion of imports. Taking into consideration the likelihood of commensurate retaliation against american exporters, us$800 billion of us trade — or about 20 percent of total us trade in goods — could be ensnared in a trade war by year’s end. and that assumes no new cases or an escalating tit-for-tat.

The last 13 presidents of the united states — going back to Franklin D. Roosevelt, who signed into law the watershed Reciprocal Trade agreements act in 1934 — considered trade to be mutually beneficial for their fostering of economic growth and good relations among nations. Those presidents aimed to avoid trade wars and

Commensurate retaliation abroad would reduce us export revenues by roughly us$150 billion (or 10 percent of us$1.5 trillion). Together, the increased costs and reduced revenue would amount to a us$260 billion reduction in manufacturing-sector profits. last year, the us manufacturing sector’s profits were us$550 billion, so a 10 percent import levy alone could end up cutting profits nearly in half. When Trump claims that protectionism will revitalize manufacturing and bring back jobs, one can only wonder where he thinks the investment will come from without the profits his tariffs will chase away.

false and Misleading

Trump’s trade policy is driven by misleading statistics and the fallacious narrative that trade destroyed us manufacturing. Trump pines for the days when us industry was unrivaled in the world, accounting for a larger share of the us economy, and employing a significant chunk of the labor force. Manufacturing’s share of the us economy peaked in 1953 at 28.1 percent and has been on a downward trajectory ever since. In 2017, that share was only 11.6 percent of GDP.

but in 1953, us manufacturing’s value-added amounted to us$110 billion, whereas in 2017, it reached a record high of us$2.24 trillion. a sector that today produces more than six times the value in real terms than it produced when it was of much greater significance to the us economy can hardly be described as declining. The sector employs about two-thirds the number of workers as it did at its peak of 19.4 million in 1979, but that reflects massive increases in output per worker, which is attributable primarily to the adoption of new technologies.

Trump seems to believe that manufacturing is the only part of the economy that matters — or the only part of the economy, full stop. When citing trade balances, the president and his advisors simply ignore us services, where the us is most competitive and growing fastest. It’s as if Google and amazon, financial services and insurance companies, tourism and intellectual property licensing don’t exist. last year, us services exports amounted to us$800 billion and generated a us$250 billion trade surplus.

For a nation whose consumers spend twice as much on services than on goods, and where 90 percent of the workforce is employed outside the manufacturing sector, the obsession with manufacturing is misplaced. but even Trump’s concerns about manufacturing are reserved for just a few heavy industries, such as steel and automobiles. he fails to recognize — or at least his policies fail to reflect — the diversity of industries within manufacturing, many of which are worried about the pain from Trump’s steel and aluminum tariffs. For every us$1 that steel producers add to GDP, steel users add us$29; for every one job in steel production, there are 46 in steelusing industries. While Trump wants credit for “protecting” the steel industry with a 25 percent import tariff, he and his advisers downplay the adverse impact on steel-consuming producers.

incoherent uncertainty

although it’s difficult to discern any coherent trade-policy strategy, the administration’s incoherent strategy seems to be to intentionally foment a climate of uncertainty. some suggest the policy dissonance is intended to distract the public from the president’s mounting domestic legal and ethical woes, but the persistent noise may be conducive to the administration’s goal of repatriating global supply chains.

Trump has sought to deter us companies from investing abroad. his tweet-shaming of us firms that were considering establishing assembly operations in Mexico, and his threats of 35 percent taxes on re-importation into the us dis-

suaded a few from moving forward with their plans. Trump’s repeated threats to withdraw the us from the North american Free Trade agreement; his insistence that any revised NAFTA agreement should require that products contain more us content to qualify for preferential treatment; and his demand for a five-year sunset clause under which NAFTA would automatically terminate unless the parties affirmatively agree to extend its terms are all designed to create uncertainty. Why?

Trump fears that trade agreements, which extend preferential access to the us market, encourage investment diversion and outflows from the us to the economies of its trade agreement partners. and he believes that by convincing the world that us trade barriers could rise at any moment, foreign companies will want to hedge their bets by investing in the us — inside the tariff wall. It may sound cynical and selfdefeating, but this kind of thinking permeates the strategy sessions of america First nationalists,