The mounting damage to America’s economy and global standing from President Trump’s trade policies illustrates the peril of ignoring the complexity of trade.
By Ed Gerwin, Senior Fellow for Trade and Global Opportunity, Progressive Policy Institute
When economic historians recount U.S. trade policy under Donald Trump, they’ll tell a cautionary tale. Like the current consensus that the Smoot-Hawley tariffs worsened the Great Depression and tanked global trade, future analysts will detail the negative economic effects of Trump’s go-it-alone trade policies. And historians will draw from a treasure trove of quotes from the “Tariff Man,” who famously said that “trade wars are good and easy to win.”
Perhaps no quote better captures the essence — and dysfunction — of Trump’s trade policies than his claim that “trade isn’t tricky.” Trump sees trade as a straightforward, black-and-white issue. As a result, he’s pursued simplistic — often blunt-force — solutions. Trump’s failure to appreciate the complexity of the interconnected global economy is perhaps the greatest source of the long-term damage that his policies are causing to America’s economy and global standing.
Trump views trade negotiations through the same I-win-you-lose, zero-sum prism that he brought to Manhattan real estate. He sees bilateral trade balances as the scoreboard for America’s trade success, even though economists insist that trade surpluses and deficits are driven by complex factors, like consumer choice and tax policy. And Trump doesn’t hesitate to use “nuclear” threats to get his way — like absurdly threatening “national security” tariffs on countries’ car exports — even at the cost of lasting damage to America’s broader relations with key trading partners.
Trump’s administration deserves credit for highlighting the serious threat of China’s unfair technology practices in their ongoing “Section 301” case. But they’re pursuing a blunt-force solution to this difficult issue, piling tariffs on top of tariffs. The president believes that making Americans pay new trade taxes on couches, caps, and craft supplies will somehow pressure China into changing deep-seated aspects of its state-directed industrial policy. And Chinese retaliation is slamming U.S. soybean and pork exports, and contributing to plummeting farm incomes. Meanwhile, Trump’s tariffs and “America First” trade policies are alienating U.S. trade partners, making it harder to pursue smarter strategies like working with allies to enforce current rules, write new ones, and ratchet up pressure on China.
Trump’s “national security” tariffs on steel and aluminum are another simplistic approach to a complex issue. Trump’s sweeping restrictions on metals imports apply to friend and foe alike, even though his own Defense Department warned that broad trade restrictions could harm relations with allies. And, although China’s subsidized over-production of metals is supposedly the main target of Trump’s tariffs, the Administration’s overburdened and nontransparent exclusion process has actually provided far more tariff waivers to imports from China than those from Canada.
The Administration likes to tout the few thousand new U.S. jobs that tariffs have added in primary metals production, even though economists estimate that trade taxes will ultimately destroy many more American jobs. Trump’s team also discounts the costs that tariffs impose on American manufacturers, consumers, and municipal governments, and the long-term loss of global markets for American exporters.
To be fair to Trump, he’s not the only one in Washington who thinks that trade isn’t tricky. For years, anti-trade Congressional Democrats have taken a similarly simplistic approach to trade. The mantra for these Democrats has been to oppose virtually every new trade initiative designed to grow the economy by expanding trade, including Trade Promotion Authority and the Trans-Pacific Partnership (TPP).
Many anti-trade Democrats were happy to see Trump pull out of the TPP. But, they’ve said little about the negative impacts that this rash step has had on American trade — and influence — in the Pacific region. Now that the 11 remaining countries have concluded the deal without the United States, TPP exporters, including Australian ranchers, New Zealand winemakers, and Canadian dairy producers, have much better access to the important Japanese market than their American counterparts. Studies estimate that withdrawing from the TPP reduced annual U.S. farm exports alone by some $1.8 billion.
Leaving the TPP had another impact that anti-trade (and pro-worker) Democrats failed to anticipate — reversing progress on labor reform in Vietnam. American participation in the TPP was seen as a driving force for improved labor conditions in Vietnam. Once Trump withdrew, however, Vietnam backtracked on labor reform and resumed its harassment of labor activists.
The mounting damage to America’s economy and global standing from Trump’s trade policies illustrates the peril of ignoring the complexity of trade. Trade is indeed tricky, and dealing with trade’s challenges requires balance, nuance, alliances, and smart solutions. This effort is worthwhile because, as the public consistently acknowledges in opinion polls, trade presents significant opportunities for America.
President Kennedy challenged America to do “hard” things, like landing on the Moon. Kennedy also championed the difficult but important work of expanding trade alliances, and warned against “stagnating behind tariff walls.” It’s time for Americans to insist that our leaders again take up the challenge of doing “tricky” things — including trade. Working on a bipartisan basis to rein in Trump’s trade abuses would be a good start.
Ed Gerwin is a senior fellow for trade and global opportunity at the Progressive Policy Institute. He is also president of Trade Guru LLC.