Tuesday, March 06, 2018

How not to win a trade war

Donald Trump - yes, him again, he of the "trade wars are good, and are easy to win" - just does not seem to have thought through the repercussions of imposing tariffs on steel and aluminium, despite the advice of economists and of many in his own weary party (UPDATE: Mr. Trump's top economic advisor, Gary Cohn has just resigned over his disagreement with imposing tariffs on steel and aluminium). Trump's stance, as one commentator described it, is pretty much: "I'm bigger than you, so give me your lunch money".
In the first instance, increased tariffs on steel and aluminium (sorry, I still can't quite bring myself to use the North American "aluminum") would increase the price of the key industrial metals used by American manufacturers, which can make American steel consumers and manufacturers less competitive. According to some estimates, by directly helping about 140,000 American steel mill employees, it would be hurting about 6.5 million Americans working in steel-consuming industries.
But it doesn't end there. By increasing the cost of US consumer goods, the consumers themselves are poorly served; there will be upward inflationary pressure, which would in turn lead to increased interest rates, which would negatively impact American stocks and bonds; the increased tariffs is also likely to result in trade retaliation from Canada, Europe and China on some American-made goods, making life more difficult for American exporters, and affecting the US balance of trade still further.
Some economists are calling the move "just straight up stupid" ftom an American perspective, and even some of Trump's erstwhile supporters are distinctly worried about it. Don't expect an attack of common-sense from Mr. Trump, though. That boat has already sailed. He has backed himself into a very small corner, but his customary respose to that is merely to hiss and spit, rather than listening to reason.
What's really annoying, though, is that, even if the United States does suffer as a result of this dogmatic , many other countries will suffere alongside it, and in effect no-one wins from a trade war like this.

No less than 107 members of the House of Representatives from Trump's own Republican Party have implored him not to bring in broad-ranging steel and aluminium tariffs and risk triggering a global trade war.
However, under the guidance of protectionist trade advisors like Peter Navarro, who appears to be filling the vacuum left by the resignation of top economic advisor Gary Cohn, he seems to be persisting, although possibly with some exemptions (for "national security" reasons) for some countries like Canada and Mexico. Those countries who do not qualify for exemptions are therefore going to be doubly pissed off.
But Trump cannot be seen to climb down, or even to be persuaded by the evidence. That is not who he is, and not who his dwindling band of supporters expect him to be. The temporary exemptions for Canada and Mexico are nothing more than leverage in the ongoing NAFTA negotiations anyway, and not evidence of a change of heart he doesn't do those either. The best we can hope for is the kind of random flip-flop he DOES do. What a pickle!

Then, just a few days after this, The Washington Post obtained audio of Trump speaking at a fundraising dinner in Missouri, in which he boasts and jokes about basically making up the facts about the Canada-US trade balance, because he "had no idea".
So, you'd think that would be it, that the jig would be up. But what does he do then, just hours later, but tweet, brazenly and unrepentently, "We do have a trade deficit with Canada, as we do with almost all countries (some of them massive). P.M. Justin Trudeau of Canada, a very good guy, doesn't like saying that Canada has a Surplus vs. The U.S. (negotiating) but they do ... they almost all do ... and that's how I know!"
Say, what? You lost me again there. It seems to me that Twitter has done the world a huge disservice by doubling its word count. Trump can now belabour us with twice the nonsense. Furthermore, I now have more and more suspicions that a multiple personality disorder is involved here. It's the only logical way I can explain it, the only way I can deal with it.

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