By exiting the Trans-Pacific Partnership (the TPP), the U.S. has forfeited the ability to change trade rules in favor of our country. Trump essentially left the best way to change the trade imbalances, in order to invoke a trade war that will hurt all parties. American citizens and industry are being hit hard by the retaliatory tariffs put in place by both China and the European Union (EU).

In trade wars, tariffs are a destructive weapon, and the destruction is only amplified by the retaliations and escalations on either side. Trump has imposed tariffs on about $200 billion worth of Chinese goods and said he is ready to increase it to $500 billion. However, U.S. goods also are being hit by the Chinese tariffs.

Soybeans are being hit with a 25 percent tariff causing Chinese buyers to increase orders from Brazil. It’s worth noting that eight out of the 10 soybean producing states voted for President Trump. Also on the list of Chinese tariffs are automobiles, which is putting pressure on U.S. auto manufacturers. Third, U.S. beef and pork exporters are being hit with tariffs by both China and Mexico. It seems that Trump does not recognize that trade and tariffs impact other countries.

The U.S. cannot win a trade war with China if it has horrible trade relations with countries in the European Union, Canada and Mexico. Countries do not want to continue trading with a nation that has imposed large tariffs on major imports. This makes life difficult for everyone involved in trade.

Trump’s economic policy comes from an underlying belief about trade. He sees trade as a zero-sum game in which the only goal is to export goods. If the U.S. imports a product, regardless of the necessity, we lose this made up battle with the other country. With the U.S. trade deficit being $568.4 billion as of 2017, we have lost this game. However, people’s reactions should not be anger that the U.S. is losing at trade, as President Trump would put it, they should be wondering why economists are not concerned.

It is important to understand that the deficit is made up of several macroeconomic factors including the value of a country’s currency, their investment rates and their relative growth rates. This is why, during the 2008 economic recession, our trade deficit decreased dramatically due to a falter of national consumption.

All that trade surpluses and deficits mean is that one country is giving money to another for goods. But President Trump is determined to end the U.S. trade deficit, most likely with a limited knowledge of economic principles.

Trump sees there are countries with a trade surplus, like Venezuela, and admires them. Why? Because, according to the World Bank, no one in Venezuela has the ability to buy anything foreign due to extraordinarily high tariffs on all imported goods. Which leads to the question of why President Trump is trying to model the prosperous U.S. economy on the collapsing economy of Venezuela.

Political economist Thomas Sowell has an excellent understanding of this concept on trade deficits in his book, Basic Economics.

“In general, international deficits and surpluses have had virtually no correlation with the performance of most nations’ economies. Germany and France have had international trade surpluses while their unemployment rates were in double digits. Japan’s postwar rise to economic prominence on the world stage included years when it ran deficits, as well as years when it ran surpluses,” Sowell said.

Unfortunately, because of Trump’s lack of knowledge about economics, Americans are hurting. The government had to issue a $12 million bailout for farmers due to their consumers not being able to afford the tariffs.

With the U.S. tariff on farm machinery from China, farmers are being hit on all sides and are not able to sustain their businesses. Major pork producers like Maschoff are worried about the agricultural industry crashing and truthfully stating that they are the casualties of the president’s trade war. Trump’s policy to bring jobs back to U.S. will lead to job loss for thousands of his citizens.

Looking back to the Bush administration in the early 2000s, we see the effects of placing high tariffs on imports. More than 200,000 jobs were lost between 2001-2003 because President Bush placed high tariffs on steel. Former Bush administration Chief of Staff, Andy Card, noted that the most worrisome part is that Bush’s tariffs were nowhere near the extent of President Trump’s.

Tariffs like these do not benefit an entire economy but instead benefit one industry while hurting many others. This is exactly what is being demonstrated and we will see the results in large-scale job loss for Americans and the strain that will put on the U.S. economy. No one wins a trade war.

Image courtesy of wccftech.

To begin, one must observe how much of an aberration in post-war American policy the current administration’s policies are. Following World War II, the United States took a leading role in fostering relatively uninhibited international trade. Taking upon themselves the role as the spokesperson for open trade, the U.S. often lectured other nations on the importance of economic interdependence and set up such institutions as the World Trade Organization, the World Bank, and the International Monetary Fund.

In this spirit of free trade, the United States also negotiated several series of multilateral talks with other nations for the purpose of lowering trade barriers including, most notably, the Kennedy Round under the Johnson Administration and the Uruguay Round negotiated under the Reagan Administration. Open trade and a scorn for protectionism, both in the United States and across the world, was the standard view in the U.S. for over fifty years following the end of World War II to the beginning of the twenty-first century, holding strong albeit with shrinking support up until the 2016 election.

The Trump Administration began their aggressively protectionist policies by withdrawing the U.S. from the Trans-Pacific Partnership (TPP) negotiated by President Obama, which sought to bind 12 Western Hemisphere and Asian countries close together through mutually beneficial trade ties. The Administration has threatened repeatedly to leave the North American Free Trade Agreement (NAFTA).

To break down the trade war, the Administration is currently caught in major trade disagreements with Canada, Mexico, the European Union and, most seriously, China. The disagreement with America’s neighbors primarily focuses on NAFTA and how President Trump views it as unfair to Americans.

While recently the administration has had a breakthrough in bilateral talks with Mexico, trade relations between the US and Canada remain mired in acrimony. In trade negotiations with the EU, the president has recently expressed frustration that they cannot make bilateral trade agreements with the independent states but must act through the European Union as a whole.

The issue that is receiving the most media attention and has the most weighty possible implications is the issue of a growing trade war with China. China is a major trade partner of the United States and widely recognized as one of the leading economic powers, further signifying the dangers of a trade war between the U.S. and China.

President Trump originally imposed tariffs on Chinese steel and aluminum. The Chinese responded with tariffs on US agricultural products. The trade war escalated from there, to the point that China has recently filed a complaint over the US tariffs with the World Trade Organization. This places the United States in the incongruous position of founder of an organization that it spent decades building, that may now become its opposition.

The Administration’s aggressive and hostile trade policies represent reckless and harmful risks to the United States in the short- and long-term futures. President Trump’s combantancy towards countries usually considered among the US’s greatest allies are corrosive in the immediate future and will have ripple effects that will impact a generation of international relations – relations that have been built up over decades by a series of presidents from both parties are being strained by President Trump’s trade policies.

These tensions bleed into other spheres and overall have an eroding effect on US credibility and standing on the world stage. Combining trade with the general retreat from the world that this administration has pursued, as well as its increasing tendency to not honor US obligations such as by withdrawing from TPP, the JCPOA and the Paris Climate Accords, the sovereign word of the United States has been cast into doubt.

If other countries perceive that the United States is overall too unreliable to maintain the traditional role it has played in the postwar world, then they will begin turning to other nations and organizations for leadership. The nations of the world will no longer turn to Washington D.C. for guidance and will no longer trust the US to uphold its obligations.    

Trade is one of the most complex issues there is, and nobody is advocating that the model used in the 1960s, 1970s or even the 1980s fits perfectly today. Automation, and a surge in multinational companies are evidence that tinkering must be done in American trade relations. However, blatantly reversing every trade position the US has held since World War II offers a far greater danger. It damages American prestige and credibility abroad, fosters discord between the US and their greatest allies, and aligns the US against the system of trade policies it helped make the norm. It invokes the specter of a time when protectionism across the world helped precipitate and worsen the Great Depression.

Image courtesy of wccftech.