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President Trump may have just started a major trade war with countries around the world over steel and aluminum, and it sure looks like he doesn’t know what he’s gotten himself into.
On Friday morning, the day after he announced his plan to impose a 25 percent tariff on all steel imports and a 10 percent tariff on all aluminum imports into the US, Trump boasted that his drastic actions would result in an easy win for the nation.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” he tweeted. “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore — we win big. It’s easy!”
There’s a lot to unpack in Trump’s tweet, but the overall message is pretty clear: The president doesn’t seem to have a full grasp of what’s going on here.
It’s peculiar — and worrying — that Trump labels trade wars as “good.” A trade war is when two countries pursue tit-for-tat protectionism against each other — they take turns blocking the other country’s exports with tools like tariffs (border taxes) and quotas (caps on imports). If their actions against each other’s exports are big enough or go on long enough, they can have a devastating impact on each other’s economies: destroying businesses, increasing unemployment, and raising the price of vital goods in both countries.
There is a legitimate debate over whether it’s worth it for a country to set up specific tariffs to protect a beleaguered domestic industry (in this case, steel) and possibly risk a trade war with other countries.
But few trade economists would say that a trade war is good or that it should be sought out; most think of trade wars as something to be avoided — or, at most, endured for the sake of protecting an industry that needs a helping hand from the government.
Trump’s conviction that trade wars are “good” seems related to his apparent belief that they are “easy to win,” which is the most revealing part of his tweet. It’s certainly easy to start a trade war, but winning one isn’t so straightforward.
That’s because countries can always find ways to retaliate — and there are already signs that countries are planning to do just that.
Trump doesn’t seem to realize that the US is very vulnerable
“If the Americans impose tariffs on steel and aluminum, then we must treat American products the same way,” European Commission President Jean-Claude Juncker told the German press on Friday. Juncker specifically singled out Harley-Davidson motorcycles, bourbon whiskey, and blue jeans — all major American exports — for possible tariffs.
If Europe hits those goods hard enough with huge tariffs, it could decrease demand for those products and cause job losses for the workers who make them. So Trump’s bid to make American steel great again could end up harming iconic American brands like Harley-Davidson and Jack Daniel’s Tennessee whiskey.
Canada is also eyeing retaliatory measures. Canadian Foreign Minister Chrystia Freeland said on Friday that restrictions on the flow of Canadian steel into the US were “absolutely unacceptable” and that Canada would take “responsive measures.”
Because so many countries — many of which are vital allies and major trading partners — export steel to the US, the US has a lot to fear in terms of possible retaliation. Mexico, South Korea, Japan, Brazil, and other countries that ship steel to the US could take aim at US exports to their countries.
So why, then, did Trump make such a risky move?
Part of the answer is that there seems to have been a shift in power among trade policy advisers in the White House. Since Trump took office, his administration has been split into two camps: one that favors free trade and is resolutely opposed to using tariffs to reboot American industries, and another that thinks tariffs are both good policy and good politics. Trump’s new tariffs are a sign that the free trade wing is losing.
According to Politico, Trump announced the steel and aluminum tariffs after several weeks of rancorous debate between his advisers that one White House aide described as “absolute chaos.” National Economic Council Director Gary Cohn, the most prominent of the free traders, reportedly got into heated arguments with White House trade adviser Peter Navarro, perhaps the most eccentric trade adviser and tariff advocate in the administration.
It’s long been rumored that one of the main things keeping Cohn from leaving the White House was his desire to stop Trump from imposing tariffs on steel. Now that he seems to have lost that battle, he may be more likely to make an exit. That would, in turn, give the “America First” trade advisers in the White House a stronger grip over trade policy and could make other controversial tariff policies more likely in the months to come.
