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Trade wars

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A US think-tank predicts that Donald Trump’s protectionist policies will spark a trade war, push America into recession and destroy 4.8 million American jobs by 2019. The Peterson Institute, based in Washington, D.C., is one of many voices sounding a warning bell about Trump’s intention to impose prohibitive tariffs on international trade.

A cross-section of political and economic wonks - including commentators, academics and journalists - has expressed concern about the impact of Trumponomics on the global economy. Many fear that the centrepiece of Trump’s macro-economic agenda, “America first”, will backfire and hurt the very people it is designed to protect - the working class.

While the cost of living for all Americans would rise as a result of a trade war, the have-nots would suffer more than the haves. This is because the less you earn, the more tariffs hurt as you are forced to spend a greater proportion of your income on more expensive goods. How the “little guy” would fair under tariffs was outlined in a Wall Street Journal article:

Nobody wins in a trade war. If Donald Trump sparks one with China, among the losers will be some of his most ardent supporters: blue-collar workers who helped sweep him to election victory. In fact, they’ll stand to lose twice. They’ve already endured stagnant incomes for decades amid withering trade competition from China. Trump’s threatened tariffs of 45 per cent on all Chinese imports would hit their pocketbooks again by raising the price of pretty much everything on sale in Wal-Mart, from sneakers to microwave ovens. Nor is there convincing evidence that punitive tariffs would bring back jobs lost to China. The march of technology has altered the employment landscape. American factory workers are threatened more by automation than Chinese sweatshops.

Workers in the American heartland voted for Trump as they felt left behind by the forces of globalisation. In reality, robots and automation have cost more blue-collar jobs than trade. Notwithstanding this inconvenient truth, the President-elect is focussing on trade as the culprit and this will have adverse consequences for America and the global economy.

Some of these consequences were identified in an opinion piece prepared during the US election campaign by another Washington, D.C., based think-tank, Third Way. In 50 Ways Trump Is Wrong on Trade, Third Way captured the sentiments of “...50 leading experts, publications, and outlets that have come out in opposition to Trump’s views on trade.”

Their collective voices warn of a stock market collapse, a new recession on par with the Great Recession, massive job losses, rampant inflation and a ballooning trade deficit. All agree that protectionism is dangerous and debunk and rebuke Trump on trade. Here are two quotes from the Third Way article.

USA Today Editorial: Trade produces more affordable merchandise and more variety, a godsend for consumers struggling to make ends meet. It is also responsible for significant amounts of employment: 11.7 million people in America work in export-related industries. And protectionist measures, such as the huge tariffs that Trump tosses around, would ignite trade wars that would do far more economic harm than good.

Brookings Institution, Financial Times: A Trump administration would pose the greatest shock to international peace and stability since the 1930s. He also opposes every trade deal America has signed over the past 30 years. He wants to use tariffs and other protectionist measures to bludgeon other countries into accepting lopsided agreements that disproportionately benefit the US. Under his presidency, the open global economy would slam shut.

During the election campaign, edition after edition of The Economist magazine was (justifiably) critical of Trump. The 7 May 2016 print edition stated that Trump “...subscribes to a set of protectionist and economically illiterate policies that are by turns fantastical and self-harming.”

It can be seen that ripping up old trade agreements and imposing massive new tariffs will likely set off a trade war that will have the precise opposite effect of liberalized trade - prices will rise and growth will slow. We can only hope that Trump’s pronouncements on trade are no more than a sabre-rattling negotiating tool and that his protectionist policies are not implemented.

As a check-and-balance against Trump’s extremism, it is important to note that the Republican Party is not historically anti-trade and that the party retains control over both the US Senate and House of Representatives. So, there’s good reason to hope that we will avoid economic Trumpageddon.

 

Regards

Paul J. Thomas, CEO

Comments

avatar Melina Morrison
0
 
 
Fine blog Paul; the conflation of trade liberalization with job losses and stagnating wages growth that Trump has expertly exploited, ignores the glaring issue of ownership. Trade can do wonderful things, but if the owners are outside of the local economy or concentrated in fewer and larger corporations, then local jobs and local reinvestment suffers. The rewards of enterprise need to shared more equitably and that's something co-operatives and mutuals with their customer owned models can help with in a highly practical way.
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CEO Paul Thomas