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Yesterday, President Trump announced that he would be enacting sweeping tariffs and aluminum and steel, which raises a prospect of a global trade war should China or another country retaliate against American goods. And Trump, the self-proclaimed very stable genius, thinks this would be just fine.
Everyone else is not so sure:
- In an editorial, Bloomberg BusinessWeek calls it “Trump’s worst economic idea”: “As Bloomberg News recently reported, Trump is considering broad duties of as much as 24 percent on imported steel and 10 percent on aluminum, with the aim of protecting national security and pressuring China to reform its trade practices. This is a terrible way to achieve either ambition. The likely outcome would be to raise prices, hinder growth, jeopardize jobs, burden taxpayers, encourage retaliation, and heedlessly destabilize the system of global trade. Not to be alarmist, but it could even raise the cost of beer. The idea is so comprehensively misguided that it has induced a rare consensus in Washington. Most of Trump’s cabinet opposes the idea, as does nearly every mainstream economist. Farm groups call it a ‘short-sighted mistake.’ Manufacturers call it ‘disastrous.’ Trump’s own Economic Report of the President, which he has no doubt read carefully, warns that such barriers could ‘distort the free allocation of capital.’”
- “For decades, the U.S. government has tried now and then to protect the steel industry—and those efforts have consistently harmed consumers, undermined manufacturers, inhibited growth and impeded innovation, all without obvious benefits. The most recent such initiative—the so-called safeguards imposed by the George W. Bush administration in 2002—raised costs and destroyed roughly 200,000 jobs.”
- Toyota says the tariffs will substantially raise production costs, which in turn will raise the prices of cars and trucks sold in America.
- As CNN notes: “The Dow closed down 420 points Thursday and both the Nasdaq and the S&P 500 dropped about 1.3%. Futures on Friday morning indicated that the market was in for another rough day. … The European Union and Canada, a big supplier of steel to the US, both condemned the President’s decision and hinted at retaliation. China could slap its own tariffs on American imports to the country, potentially harming US farmers since China is the biggest buyer of US soybeans.”
- From The New York Times: “Chrystia Freeland, the Canadian minister of foreign affairs, called any measure that deemed Canadian trade a national security threat ‘entirely inappropriate.’ ‘Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,’ she said.”
WHAT IT MEANS: Trump wants to appease what he perceives as his base—blue-collar whites who have struggled under globalization. Here, slapping tariffs is a way to show them that he’s looking out for them and will increase domestic production of these metals, thus invigorating the local economies. Of course, that doesn’t ever work in practice. Tariffs against American agriculture and higher prices for construction and automobiles will hurt the economy far more than the tariffs will help domestic manufacturers. Smoot-Hawley taught us this back during the Depression. And beyond the costs of a trade war, Trump is also injecting even more instability into the global regime, sparking conflict where there need not be any. He is, after all, a chaos president.
- A telling lead from the NYT: “For 13 months in the Oval Office, and in an unorthodox business career before that, Donald J. Trump has thrived on chaos, using it as an organizing principle and even a management tool. Now the costs of that chaos are becoming starkly clear in the demoralized staff and policy disarray of a wayward White House. The dysfunction was on vivid display on Thursday in the president’s introduction of tariffs on steel and aluminum imports. The previous day, Mr. Trump’s chief economic adviser, Gary D. Cohn, warned the chief of staff, John F. Kelly, that he might resign if the president went ahead with the plan, according to people briefed on the discussion. Mr. Cohn, a former Goldman Sachs president, had lobbied fiercely against the measures. His threat to leave came during a tumultuous week in which Mr. Trump suffered the departure of his closest aide, Hope Hicks, and the effective demotion of his senior adviser and son-in-law, Jared Kushner, who was stripped of his top-secret security clearance. Mr. Trump was forced to deny, through an aide, that he was about to fire his national security adviser, Lt. Gen. H. R. McMaster. Mr. Kelly summed up the prevailing mood in the West Wing. ‘God punished me,’ he joked of his move from the Department of Homeland Security to the White House during a discussion to mark the department’s 15th anniversary.”