Trump Seems Intent on Destroying the Global Economy…

(Don Boudreaux)

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… and, to the extent that he succeeds in this madness, he will inflict incalculable damage, not just on non-Americans, but on – and perhaps especially on – Americans as well.

Trump’s belief that his trade policies will enrich Americans and makes us more secure, both economically and militarily, is a figment only of his economic ignorance and naiveté. His trade policies will eventually more than eliminate any of the economic benefits that other of his policies are generating. Trump and his advisors – both those, such as Peter Navarro, who actively encourage Trump’s trade madness, and others who, despite knowing better, cravenly abide it because of their wish to remain near The Prince – are fast becoming a greater threat to Americans’ prosperity and peace than are any foreign governments.

I hope that I here unintentionally do – but fear that I here do not – exaggerate. I’m led to the above conclusion by this exquisite and deeply important essay in the September/October 2019 issue of Foreign Affairs by Douglas Irwin and Chad Bown. It’s titled “Trump’s Assault on the Global Trading System.”

Doug Irwin, of Dartmouth, is widely recognized as one of the world’s leading trade economists. Those of us who know Doug know him to be understated, calm, profoundly scholarly, indisputably fair-minded, incredibly learned, and non-partisan. I don’t know Chad Bown personally, but know of his excellent reputation as a serious trade analyst. And so the descriptions and warnings that run throughout Doug’s and Mr. Bown’s essay deserve your serious attention and respect.

As I read this essay I thought often of some people whom I know who have become apologists, either by commission or by their silence, for Trump’s trade madness, despite their knowing – or once knowing – better. They know who they are. I beg them to do what’s right and abandon the Trump train. Speak out against Trump’s trade madness. Speak out to Trump. Speak out publicly. Be courageous and not cowardly. Be valiant and not venal.

Trump’s trade policies are dangerous, and not just economically. By severing the commercial ties that connect people around the globe, Trump’s trade policies could well lead down the road to a cataclysmic shooting war.

Below are some passages from Irwin’s and Bown’s essay, but do read this essay in its entirety.

Donald Trump has been true to his word. After excoriating free trade while campaigning for the U.S. presidency, he has made economic nationalism a centerpiece of his agenda in office. His administration has pulled out of some trade deals, including the Trans-Pacific Partnership (TPP), and renegotiated others, including the North American Free Trade Agreement (NAFTA) and the U.S.-Korea Free Trade Agreement. Many of Trump’s actions, such as the tariffs he has imposed on steel and aluminum, amount to overt protectionism and have hurt the U.S. economy. Others have had less obvious, but no less damaging, effects. By flouting international trade rules, the administration has diminished the country’s standing in the world and led other governments to consider using the same tools to limit trade arbitrarily. It has taken deliberate steps to weaken the World Trade Organization (WTO)—some of which will permanently damage the multilateral trading system. And in its boldest move, it is trying to use trade policy to decouple the U.S. and Chinese economies.

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But by mid-2018, the leading globalists had left the administration, and the nationalists—the president among them—were in command. Trump has a highly distorted view of international trade and international negotiations. Viewing trade as a zero-sum, win-lose game, he stresses one-time deals over ongoing relationships, enjoys the leverage created by tariffs, and relies on brinkmanship, escalation, and public threats over diplomacy. The president has made clear that he likes tariffs (“trade wars are good, and easy to win”) and that he wants more of them (“I am a Tariff Man”).

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Prior administrations refrained from invoking the national security rationale for fear that it could become an unchecked protectionist loophole and that other countries would abuse it. In a sign that those fears may come true, the Trump administration recently stood alongside Russia to argue that merely invoking national security is enough to defeat any WTO challenge to a trade barrier. This runs counter to 75 years of practice, as well as to what U.S. negotiators argued when they created the global trading system in the 1940s.

The Trump administration dismissed all those concerns. The president and leading officials desperately wanted to help the steel and aluminum industries. (It did not hurt that Wilbur Ross, the commerce secretary, and Robert Lighthizer, the U.S. trade representative, both used to work for the steel industry.) The administration also believed that its willingness to impose economic self-harm in the form of higher steel and aluminum prices for domestic manufacturers would send a strong signal to other countries about its commitment to economic nationalism.

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Acts of protectionism are acts of self-harm. But the Trump administration is also doing broader, and more permanent damage to the rules-based trading system. That system emerged from the ashes of the trade wars of the 1930s, when protectionism and economic depression fueled the rise of fascism and foreign governments made deals that cut U.S. commercial interests out of the world’s leading markets. In 1947, the United States responded by leading the negotiations to create the WTO’s predecessor, the General Agreement on Tariffs and Trade, which limited arbitrary government interference in trade and provided rules to manage trade conflicts. Under this system, trade barriers have gradually fallen, and growing trade has contributed to global economic prosperity.

The United States once led by example. No longer. Trump has threatened to leave the WTO, something his previous actions suggest is more than idle talk. He says the agreement is rigged against the United States. The administration denounces the WTO when the organization finds U.S. practices in violation of trade rules but largely ignores the equally many cases that it wins. Although the WTO’s dispute-settlement system needs reform, it has worked well to defuse trade conflict since it was established over two decades ago.

Trump’s attacks on the WTO go beyond rhetoric. The administration has blocked appointments to the WTO’s Appellate Body, which issues judgments on trade disputes; by December, if nothing changes, there will be too few judges to adjudicate any new cases. When that happens, a dispute-settlement system that countries big and small, rich and poor have relied on to prevent trade skirmishes from turning into trade wars will disappear. This is more than a withdrawal of U.S. leadership. It is the destruction of a system that has worked to keep the trade peace.

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There were hints from the beginning that the administration was never searching for a deal that would truly end the trade war. In 2017, Navarro outlined the administration’s view that trade with China threatened U.S. national security. He also let slip that he wanted to rip up the supply chains that bound the United States and China together. At the time, some dismissed him as a rogue eccentric. Now, the United States is on the cusp of slapping tariffs on all imports from China—the first step toward Navarro’s goal. Geopolitics has trumped economics.

This is not protectionism in the sense of trying to help a domestic industry in its struggle against imports. The goal is much broader and more significant: the economic decoupling of the United States and China. That would mark a historic fragmentation of the world economy. It would represent, in the words of former Treasury Secretary Henry Paulson, the falling of an “economic iron curtain” between the world’s two largest economies. Such a separation would have foreign policy and national security implications well beyond the economic consequences.

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If the Trump administration really does want to separate the U.S. and Chinese economies, the United States will have to pay an economic price. Trump denies that his strategy has costs. China, he says, is paying the tariffs. “I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers,” he tweeted in May. This is nonsense: research shows that firms pass on the cost of the tariffs to American consumers. And U.S. exporters—mainly farmers facing the loss of markets due to China’s retaliation—are paying the price, as well. So, too, are American taxpayers, now on the hook for tens of billions of dollars needed to bail out the reeling agricultural sector.

Whether Trump appreciates these costs isn’t clear, but it’s evident that economic considerations aren’t driving policy. The president’s willingness to look past stock market slumps and continue to push China shows that he is willing to pay an economic price—whatever he says in public. For someone whose reelection depends on maintaining a strong economy, that is a bold gamble.