The president's tariffs are putting the economy and American leadership at risk.
In the iconic “Blazing Saddles” scene, Cleavon Little’s character escapes from a lynch mob by holding a gun to his head and “taking” himself hostage. The rubes fall for it and he escapes.
Nobody’s laughing, however, as President Trump enacts tariffs on imported steel and aluminum, raising the risks of a trade war and the breakdown of the American-led liberal world order. Under Trump, America has in essence put the gun to its own head, with no rational end game.
The New York Times tries to rationalize it, noting that Trump is exempting Canada and Mexico pending NAFTA renegotiation, and even raising the possibility that the EU and others could make a deal. But the money quote comes from Phil Levy of the Chicago Council on Global Affairs, who also worked on trade for the George W. Bush administration: “That’s the part of this that feels like an extortion racket. Nice little steel industry you have there; would be a shame if something happened to it.”
I don’t buy it. The president doesn’t read policy papers, doesn’t know history, gets his briefing from “Fox & Friends.” Does he know that the United States is the world’s largest trading nation, factoring in imports and global supply chains? Does he know we are the planet’s second-largest exporter after China? Does he even know that Canada is the largest source of imported steel, therefore the tariffs will do little to protect American steelworker jobs? Does he know that the Smoot-Hawley Tariff played a significant role in the Great Depression?
It’s a stretch to believe he even cares. This is another, bigger, stunt like the one that supposedly saved jobs at Carrier plants in Indiana (only it didn’t, once the media had moved on).
The problem is that although these tariffs will have a minor direct effect at first, their substance and symbolism is huge. Nations affected by the tariffs — enacted not with WTO sanction but under an obscure national security rationale — can retaliate. And because America is the world’s second largest exporter, those reactions can hurt us in many places.
Users of imported steel, such as small manufacturers, will face higher prices thanks to the tariffs. They will pass the costs on to customers, and the disruption could cost the factory jobs Trump claims to champion.
This gets at the heart of international trade. Unlike a hard-nosed developer’s win-lose deal, trade is about win-win. It’s about expanding the pie.
Looking further out, the world sees an America abandoning the trading system it worked for decades to create. It was where everyone played by the same rules and tariffs were going down. It was a spectacular success in raising world trade, improving incomes worldwide and giving American consumers a cornucopia of inexpensive goods.
Yes, it was flawed: China played by different rules, and was enabled by American corporations greedy to gain access to the Chinese market no matter what.
That system was still better than Trump’s ad hoc game. It was more than economics, too — part of an American-led system to ensure peace and stability.
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His dismantling of it will be a boon for China, which will gain even more global stature and economic heft. If the reality TV trade show turns into a real trade war, here’s your trigger for the Trump recession — or worse.
Today’s Econ Haiku:
TPP kicks off
Without the United States
We will kick ourselves