Sunday, March 4, 2018

Trade War 101

I was quick to tweet but slow to blog about Trump's desire for a trade war because I don't research or teach International Political Economy.  However, the stuff here is so very basic that I can at least highlight some of the truly stupid stuff here.
  1. Countries will respond, raising barriers to American goods, so many American companies will be hurt.
  2. Any/all companies in the US that use steel/aluminum as inputs will have to raise the prices of their goods, making them less competitive on world markets and more expensive to those who buy them (tis bad for the car industry, for instance).  Others have pointed out that there are far more jobs and money in the businesses where people rely on steel/al products than in the production of steel and aluminum.  This is like fucking over the solar industry for the very small coal industry.
  3. As a result, this may cause inflation (going along with huge deficit spending in a relatively booming economy).  
  4. This will undercut the international institutions that the US built to, um, help the US.  While these agreements/norms/institutions were built so that others would buy in, they were very much aimed at creating an international environment conducive for US businesses.  Given that the World Trade Organization and other dispute panels have more often found in favor of American complaints than Chinese, for instance, this gutting of the trading order is not good.
  5. Steel is not coming back.  The rust belt will not unrust.  
  6. Protectionism like this always costs far more per job saved than what those jobs pay.  In other words, this is a very inefficient way to help these workers.  Better safety nets and training programs would be far better.
  7. Targeting allies is bad.  This will hurt Germany, Japan, and Canada probably more than it hurts China and certainly far more than Russia.  So, yeah, another example of Trump, stuck in the 1980s, hurting the US position in the world.  
  8. Pretty sure all of that supposed infrastructure program (not to mention a wall) require steel, so the prices of such stuff will escalate.
Of course, Trump doesn't care.  He is just angry at some slight, and we just have to be relieved he chose trade war rather than the other kind of war vs. North Korea or Iran.  Trump has never demonstrated much insight from the lessons of the 1930s, and he has always been a mercantilist.  The only good economic deal is an exploitative one.  The problem as I started off with is that other countries are not like contractors in the NY construction business--they can and will retaliate.  I have long wondered why the markets have liked Trump because this day was coming.... but they got their tax cuts.

Since tariffs are taxes, Congress does have a say.  Will they undelegate the authority they delegated to the President?  Will the GOP in Congress resist?  Is this like the tax cuts or like the Russian sanctions?  I have no idea since it requires Paul Ryan and Mitch McConnell to do the right thing.  How likely is that?

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