Trump’s trade war
A looming crisis for Europe
Last week, Donald Trump gave “one of the greatest displays of economic nonsense in presidential history”, said The Wall Street Journal. He declared that he would impose tariffs of 25% on all steel imports and of 10% on aluminium – in order to protect US heavy industry from its foreign competitors. The EU and Canada, both big exporters to the US, immediately threatened retaliatory penalties. Trump then doubled down, stating that he would respond by putting a tax on European cars. And that if this were to set off a trade war, so be it. “Trade wars are good, and easy to win,” he declared on Twitter. “This way madness lies,” said The Times. “Western prosperity is built on free trade.” We have seen what protectionism does: in the 1930s, it triggered trade wars and the Great Depression. “We’ve known tariffs are a bad idea since Adam Smith,” said Tom Mullen on Capx. They only damage the economies that they are designed to protect, as well as world trade in general.
I suspect that Trump is bluffing, said Tim Stanley in The Daily Telegraph – threatening tariffs “to frighten his global competitors” into offering better trade terms. Even so, the president is right to “fight back” on free trade. Since 1989, both Republicans and Democrats have supported it, even though it led to millions of jobs shifted overseas, devastating large parts of Middle America. And the world is not, as too many economists suppose, driven by “dispassionate market forces that seek to make everyone richer and freer”. China, for instance, is a communist state that “uses capitalism to advance nationalist goals”. It has no compunction about “cheating and dumping”. Where once the US led the world in steel production, now it has been far outpaced by China, said Michael Stumo on The Hill (Washington). Starting in 2004, Beijing began to funnel billions in subsidies to its steel mills; it has also artificially devalued its currency to lower the cost of exports. This has taken a terrible toll on American industry. “Since 2000, US steel employment has fallen by roughly 50,000 jobs.”
That’s missing the point entirely, said John Cassidy in The New Yorker. The US has long imposed punitive tariffs on cheap Chinese steel; today, only 2.4% of US steel imports come from China. Trump’s tariffs, by contrast, would apply to all imports. And its biggest steel suppliers – including Canada, Brazil, the EU and South Korea – are all allies who play by the rules. In themselves, these tariffs won’t cause vast amounts of damage, said Edward Luce in the FT. But the worry is that the Trump administration is only “just starting to rev its engines”. The “globalists” in the administration are being driven out: the top White House economic policy adviser Gary Cohn, an opponent of tariffs, resigned this week, leaving Trump “freer to pursue his America First agenda”. As Roberto Azevêdo, the World Trade Organisation head, warned: “Once we go down this path it will be very difficult to reverse course. An eye for an eye will leave us all blind and the world deep in recession.”