“Trade wars are good, and easy to win” – President Donald Trump, by tweet, 5:50 a.m. ET, March 2, 2018.
Excuse me, but Donald Trump is a fool – a blithering, dangerous fool.
This is the 21st century. Trade wars are never good. In today’s interdependent world, they may be impossible for any nation to win, even the United States, which is no longer the economic colossus that Trump, stuck in an isolationist time warp, believes it is.
As Washington Post columnist Paul Waldman put it on Friday, “You could survey a hundred economists – both liberal and conservative – and not one would tell you that “trade wars are good, and easy to win.”
On Thursday, Trump, who has the power to do so by executive order, announced he will impose tariffs of 25 per cent on imported steel and 10 per cent on aluminium. “The immediate beneficiaries will be the American steel and aluminum industries, while the victims will be . . . well, anyone who buys anything that’s made with steel or aluminum, which is pretty much everyone,” Waldman wrote.
The New York Times noted on Sunday that the American mills and smelters that would directly benefit from the new tariffs employ fewer than 200,000 workers, while the companies that would bear the burden of the higher prices the tariffs would bring – firms that manufacture everything from trucks to chicken coops – employ more than 6.5 million.
Trump’s tariffs, announced without warning, are not only bad economics, they are bad politics. They aim to please a corner of his base at expense of much larger numbers of blue-collar workers in manufacturing.
It may make no sense, but that does not matter. Some Trump analysts argue that he suffers from gelotophobia, the fear of being laughed at. He seems convinced that America’s trading partners, led by China, are laughing at the United States and, by extension, at him personally. China which accounts for 65 per cent of the U.S. global trade deficit, is the primary enemy in the trade war.
After China, Canada is the United States largest trading partner. Trump, who betrays no comprehension of trade statistics, complains about a deficit with Canada. Yes, in terms of goods alone, the U.S. ran a deficit of US $18 billion in 2017. But when financial and other services are added to the ledger, the deficit becomes a surplus for the United States ($12.5 billion in 2016).
Justin Trudeau and his emissaries have been making this case in Washington and state capitals for months. They argue that Canada and the United States enjoy the world’s best balanced and mutually beneficial trading relationship. The object should be to strengthen it, not to tear it down, as by renouncing NAFTA or by raising new tariff walls. The governors get that and so do congressmen from states that trade with Canada.
For the moment, China is taking a cautious approach to Trump’s tariffs, downplaying the anticipated impact on Chinese exports. Beijing is waiting to see what happens next. Is Trump serious? Can he get his way? Or will he perhaps change his mind at dawn tomorrow?
Nothing is ever certain with the erratic Trump, but all available indicators suggest that, yes, he is serious. Yes, he can most likely get his way, unless members of his Republican party find the courage to stand up to him. But although he is not likely to change his mind on trade, he could be diverted in his next tweetstorm. Perhaps he will be so outraged by something at the Oscars that a trade war will be driven from his mind – until it returns.
Canada can hope so. Propinquity makes dealing with Trump especially difficult, and the fact that NAFTA is hanging in the balance adds urgency to the challenge. Trudeau needs to keep walking a tightrope – humoring the president while making it clear that Canada is not about to be bullied. The blithering fool next door is Canada’s problem, too.