Costly, fruitless and open-ended, Trump could be starting something he won't be able to finishby Adam Posen / March 20, 2018 / Leave a comment
Trade conflict is recurrent, ubiquitous, and occasionally quite contentious. Yet, for all the political attention given, no major economic problems have arisen as a result of these conflicts in over 70 years—let alone anyone resorting to military force to settle them.
The Trump administration’s trade threats and tariff actions to date, however, are the most dangerous measures since the United States and its allies set up the international economic system in the 1940s. Several factors distinguish a trade war from mere friction. Governments start viewing trade as a conflict between nations, rather than a beneficial process to manage. They assume that bullying is preferable to multilateral rules. They put a premium on doing damage rather than deterring bad behaviour. Ultimately, they break down the separation between commerce and national security, raising the risk of significant escalation of conflict.
Trade war feeding real war is precisely what Franklin Roosevelt and Cordell Hull, his Secretary of State, had intended the postwar trading system to preclude, given fresh memories of how German, Japanese (and British) economic imperialism in the 1930s had fuelled military rivalry. Trump and his remaining economic advisers repudiate this arrangement. They are under the delusion that the US has been exploited by the rules-based system that it created. Moreover, they apparently think that every government will give in to US interests. That delusional world view is about to be proved wrong. The process of demonstrating it will be costly for people around the world, including in the US.
Steel and aluminium tariffs are of minimal economic impact—which shows just how foolish it is to erode the world trading system for those industries’ sake. If these 19th century industries which employ less than 0.1 per cent of the American workforce actually mattered to the performance of the US economy, then raising the price of their products to those industries that use them would be hugely costly. There should be no pretence that there is any economic justification for such tariffs.
For every one US worker in metals production there are more than 40 workers in metals-using industries. Taxing the latter to privilege the former makes no sense. In national security terms it makes no sense either, because it hits US military allies in Europe, as well as…