photo by Gage Skidmore
Most Republicans reacted with something between dismay and horror when President Trump announced – in an offhanded remark last week – that he planned to impose global tariffs of 25 percent on imported steel and 10 percent on aluminum.
This was heresy to the party’s dominant pro-business wing, whose members favor free trade and free markets, except when they don’t. (Case in point: the Jones Act, which protects mostly nonexistent American maritime jobs at great cost to residents of Hawaii and Puerto Rico and at lesser expense to everyone else.) Democrats, meanwhile, were remarkably subdued, considering that they react to nearly every Trump utterance with declarations that he is demented. This is a hint that the so-called nativist wing of the GOP, like Trump himself, isn’t necessarily all that Republican. Folks have been saying for years that they want to take the partisanship out of politics, so here you go.
I was more bemused by the Republican reaction to Trump’s tariff talk than upset at the prospect of the tariffs themselves. You would think that, by now, everyone would have learned to disregard whatever Trump says and pay attention to what he does. The president says all sorts of things for all sorts of reasons, or maybe for no reason at all (although I doubt this happens as often as his critics claim). Trump disclosed his tariff plan on March 1 and said he would sign the order this week. He did, in fact, move ahead with the plan on Thursday after a week of uncertainty. But he did so with modifications that strongly hinted he was deliberately sending a message last week with his seemingly spontaneous and overbroad remarks.
Trying to get inside a president’s head is a scary business, and this chief executive’s cranium probably contains more sharp curves and loop-the-loops than most. He reverses direction on details so often that motion sickness is a constant threat. But from the start of his candidacy through the first 14 months of his administration, Trump has consistently expressed a set of themes that fit neatly with his tariff announcement. Seen from his point of view, Trump’s tariff threat is perfectly rational, and he is clearly correct about the broad fact pattern – if not the details – supporting it. Whether his policy response will make things better or worse is a matter of conjecture, at least for now.
Remember that Trump sees himself as a deal-maker. To make a good deal, you want to negotiate from the strongest position possible. Trump is clearly using the tariffs to improve his negotiating position on a broad range of issues. The initial reaction from abroad suggests it is working, at least to some degree.
Trade is usually a win-win in which both sides get some benefit. Trump is recognizing that the benefits are not necessarily equal, and he considers current trade arrangements to be far more beneficial to other countries than to his. China’s huge trade surplus with America gives Americans access to many cheap goods, but it has been a major contributor to China’s rise as a global economic and military power. If Trump thinks this tilts sharply in China’s favor, he might arguably be wrong – feel free to make that case, because I won’t – but he surely isn’t crazy for thinking so.
Trump has said all along that Canada and Mexico benefit far more from the North American Free Trade Agreement than does the United States, and both countries have resisted Trump’s aggressive demands to renegotiate the treaty. Canada sends 88 percent of its steel exports and 87 percent of its aluminum exports to the U.S., so Trump’s tariff plan certainly got Ottawa’s attention. Unsurprisingly, within a few days of its announcement, Trump was publicly linking a potential exemption for Canadian and Mexican exports to the NAFTA negotiations. The – pointedly temporary – exemption made it into the final plan, as did the implicit negotiation pressure.
European Union countries that have wielded market access as a club in negotiations over Brexit suddenly became committed free-traders when Trump threatened the tariffs. Many of those same countries have aggressively pursued major U.S. companies over their favorable European tax arrangements and on real or imagined antitrust issues. Most of them are NATO allies that have consistently underfunded their obligations to the alliance. The major players among them have also been strong advocates of the Iran nuclear agreement that Trump has vocally opposed but not (yet) abrogated. The president is well aware of all these facts and has made mention of most of them.
Likely the biggest target for Trump’s move is China. Even critics of the president’s global tariffs concede that China is abusing or circumventing trade rules to keep its largely state-owned heavy industries humming. The Wall Street Journal reported in 2016 that a Chinese businessman may have stockpiled 6 percent of the world’s aluminum in Mexico to bring into the United States under NAFTA rules and avoid duties that were already applied to exports direct from China. Chinese officials said their country would work with Trump on trade, but would not stand idly by while their exports are targeted by unilateral U.S. action.
Trump wants Chinese trade concessions, but he probably wants greatly increased Chinese pressure on North Korea even more. China ran a record $375 billion trade surplus with the United States last year. Trump probably sees this as 375 billion reasons why China should step up its efforts to prod Pyongyang into abandoning its missile and nuclear weapons programs.
Overall, the American trade deficit with the rest of the world was $566 billion last year, the highest figure in nine years. To an extent, that figure reflects an improved American economy relative to the rest of the world. Because a lot of the dollars we send abroad return in the form of Treasury debt purchases that finance our federal budget deficit, we are not necessarily the worse for it.
This is one reason, and far from the only reason, why most economists believe (contrary to Trump’s assertions) that nobody can win a trade war. Maybe the president even believes them. But just as one side wins more than the other in a win-win situation, somebody always has more to lose in a war without winners. Trump has apparently decided, not without reason, that the rest of the world has more to lose in a trade war than we do. He is trying to take advantage of that fact to address a lot of other issues.
It may be unwise. It may be unsuccessful. But on the facts underlying his apparent logic, it is hard to argue that Trump is just plain wrong.