Trump’s trade wars have not led to disaster

When Donald Trump launched his protectionist trade wars earlier this year, many predicted the worst.

The U.S. president, his critics said, risked throwing the global economy into recession. Comparisons were drawn between Trump’s actions and the tit-for-tat tariff moves of the 1930s that fuelled the Great Depression.

Trump’s decision to slap tariffs on $250 billion worth of Chinese imports into the U.S. — and China’s inevitable retaliation — were singled out as particularly dangerous.

But his other moves, such as imposing tariffs on steel and aluminum from Canada were also seen as job-killers.

Analysts predicted that the steel and aluminum tariffs would put thousands of Canadian jobs and hundreds of thousands of American jobs at risk.

So far, neither of these doomsday scenarios has come to pass.

In Canada, the steel and aluminum tariffs have led one Sault Ste. Marie pipe manufacturer to lay off 40 workers. But as far as I’ve been able to tell, that’s about it.

Ottawa has earmarked $2 billion to help struggling Canadian steel and aluminum companies weather the tariff storm. Yet it’s not clear how much, if any, of this money has been used.

Meanwhile in the U.S., the expected job losses in industries that use steel and aluminum have failed to materialize.

In fact, as Bloomberg reported last week, employment in America’s metal fabricating industries has risen since April.

And in spite of the trade war between China and the U.S., the global economy continues to hum along.

The International Monetary Fund predicts that, at most, trade tensions will reduce global economic growth next year only marginally, from 3.9 to 3.7 per cent.

The reasons for all of this are straightforward. Protectionist trade wars may divert economic activity. They do not, however, necessarily kill it.

As a useful report by Globe and Mail Asian correspondent Nathan Vanderklippe points out, the U.S.-China trade war has produced complicated results.

Chinese tariffs on U.S. wool, for instance, have hurt American producers but helped Canadian ones. Canadians who last year might have sold raw wool to the U.S. now find it more profitable to market their wares in China.

Similarly, Chinese tariffs against U.S. soy have opened up new markets for beans and oil seeds from Canada, Russia, Ukraine and South American.

Over the last year, Canadian oilseed shipments to China doubled. Between April and August, Canadian merchandise exports overall to China rose by 23 per cent.

In short, Trump’s protectionism, while reducing China’s trade with the U.S. has served to expand it with other countries.

There is an efficiency cost associated with this shift.

But as Nobel Prize-winning economist Paul Krugman writes in his New York Times column, it is not a particularly big one.

“It’s … tempting to assume that because the Trumpist argument for trade wars is so stupid, Trump trade policies must be totally disastrous,” Krugman writes. But that’s not the case. “Simple trade models, while they do say trade wars are bad, don’t say they are catastrophic.”

Krugman’s reasoning is based on the arithmetical fact that, in the end, global trade must balance out — that the value of goods and services exported around the world must, by definition, equal the value imported.

This in turn means that even though protectionism will penalize some producers it will reward others, leaving the global economy as a whole relatively unscathed.

There will be a cost, as supply chains are disrupted. However, trade wars alone should not send the world careering into recession.

This is what economic theory predicts about Trump’s protectionist trade policies. So far, reality is backing that theory up.