Oh, What a Trumpy Trade War!
Posted March 8, 2018 7:20 p.m. EST
There’s near-universal consensus among both economists and business leaders that Donald Trump’s tariffs on steel and aluminum are a bad idea, and that the wider trade war those tariffs could trigger would be very destructive. But the chances of heading off this policy disaster are small, because this is a quintessential example of Trump being Trump.
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In fact, the tariffs are arguably the Trumpiest thing Trump has done so far.
After all, trade (like racism) is an issue on which Trump has been utterly consistent over the years. He has spent decades railing at other countries that, he claims, hurt America by taking advantage of our relatively open markets. And if his views are based on zero understanding of the issues or even of basic facts, well, Trumpism is all about belligerent ignorance, across the board.
But wait, there’s more. There’s a reason we have international trade agreements, and it’s not to protect us from unfair practices by other countries. The real goal, instead, is to protect us from ourselves: to limit the special-interest politics and outright corruption that used to reign in trade policy.
Trumpocrats, however, don’t see corruption and rule by special interests as problems. You could say that the world trading system is, in large part, specifically designed to prevent people like Trump from having too much influence. Of course he wants to wreck it.
Some background: Contrary to what some seem to believe, textbook economics doesn’t say that free trade is win-win for everyone. instead, trade policy involves very real conflicts of interest. But these conflicts of interest are overwhelmingly between groups within each country, rather than between countries. For example, a trade war against the European Union would make America as a whole poorer, even if the EU didn’t retaliate (which it would). It would, however, benefit some industries that happen to face stiff European competition.
And here’s the thing: The small groups that benefit from protectionism often have more political influence than the much larger groups that are hurt. That’s why Congress used to routinely pass destructive trade bills, culminating in the infamous Smoot-Hawley Tariff Act of 1930: Enough members of Congress were bought off, one way or another, to enact legislation that almost everyone knew was bad for the nation as a whole.
In 1934, however, FDR introduced a new approach to trade policy: reciprocal agreements with other countries, in which we exchanged reduced tariffs on their exports for reduced tariffs on ours. This approach introduced a new set of special interests, exporters, who could offer countervailing power against the influence of special interests seeking protection.
FDR’s reciprocal agreement approach led to a rapid unwinding of Smoot-Hawley, and after the war it evolved into a series of global trade deals, creating a world trading system that these days is overseen by the World Trade Organization. In effect, the U.S. remade world trade policy in its own image. And it worked: The global deals that evolved from the reciprocal tariff approach greatly reduced tariff rates around the world, while setting up rules that constrain countries from backtracking on their commitments.
The overall effect of the evolution of the world trading system has been very salutary. Tariff policy, which used to be one of the dirtiest, most corrupt aspects of politics both in the U.S. and elsewhere, has become remarkably (though not perfectly) clean.
And I’d add that global trade agreements are a striking and encouraging example of effective international cooperation. In that sense they make a real if hard to measure contribution to democratic governance and world peace.
But then came Trump.
Under U.S. trade law, which is written to be consonant with our international agreements, the president can impose tariffs under certain narrowly defined conditions. But the steel and aluminum tariffs, justified with an obviously bogus appeal to national security, clearly don’t pass the test.
So Trump is in effect both violating U.S. law and throwing the world trading system under the bus. And if this escalates into a full-scale trade war, we’ll be back to the bad old days. Tariff policy will once again be driven by influence-peddling and bribery, never mind the national interest.
But that won’t bother Trump. After all, we now basically have an Environmental Protection Agency run on behalf of polluters, an Interior Department run by people who want to loot federal land, an Education Department run by the for-profit schools industry, and so on. Why should trade policy be different?
It’s true that many big businesses and free-market ideologues, who thought they had Trump in their corner, are horrified by his moves on trade. But what did they expect? There was never any good reason to think trade policy was safe from Trump’s depredations.
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