TRUMP’S CYCLE OF FAILURE

By Jon Taylor

On July 6， U.S. President Donald Trump launched a series of punitive and counterproductive tariffs on $34 billion worth of Chinese goods and products. In response， China applied reciprocal tariffs on $34 billion worth of U.S. goods. These moves come on top of U.S. tariffs already imposed on Chinese steel， aluminum， washing machines and solar panels.

While the aggregate amount of trade affected has been moderate relative to both nations economies， it is a very troubling sign that Trump felt the need to engage in some of the most protectionist import duties since the Smoot-Hawley tariffs of the early 1930s， which had a devastating effect on the global economy and transformed a deepening economic crisis into a full-blown calamity. And to add to the misery， Trump has threatened to levy a 10-percent tax on an additional $200 billion of imports from China.

Where will it end and what will be the effect on China， the United States and the global economy？ I believe that the answer is quite simple： It will end badly for Trump because history tells us that when the United States introduces protectionist tariffs， it typically doesnt lead to an improvement in the trade balance. Rather， more often than not， protectionism has led to the opposite effect.

Vain attempts

This should not come as a surprise to anyone who possesses even a basic understanding of economic globalization. The U.S.-imposed tariffs on Chinese steel and aluminum act as a tax on U.S. manufacturers that use steel and alumi- num to make their products. The 25-percent tariff on steel has increased the price of domestic steel in the United States by as much as 40 percent since the beginning of the year. As a result of the new 10-percent tariff on aluminum， prices for that commodity climbed to a fouryear high in June. Tariff-driven price increases and the countermeasures taken by China and other countries are already threatening the jobs of thousands of U.S. factory workers， farmers and ranchers. And that threat grows by the day. Yet Trump thinks hes winning.

Despite Trumps confident assurances， trade wars are bad and virtually impossible to win. In honor of the 2018 FIFA World Cup， Trump appears quite eager to score an own goal. Unfortunately， this own goal has much more serious consequences than a mistake made on the football pitch.

Rather than working with the established global governance framework， Trump has decided to engage， yet again， in unilateral action. By going it alone and bypassing the World Trade Organization （WTO） in favor of imposing tariffs on Chinese goods and products， the Trump administration is violating WTO rules that were designed to encourage negotiations， promote consensus building and prevent wasteful and useless trade wars.

While there are legitimate areas of dispute between the two nations， the abandonment of global governance mechanisms in favor of unilateral and highly protectionist actions is counterproductive to resolving these disputes. Trump is fantasizing if he believes that his administrations tariffs will seriously impact China and its economy. Frankly， China will demonstrate that it has both the resiliency and economic strength to more than weather the U.S. tariff storm.

While Trump may have a point regarding the size of the U.S. trade deficit with China—which is considerable—it must be noted that the trade deficit has allowed U.S. consumers to purchase cheap and relatively high-quality goods from China. Both countries have greatly benefi ted from this relationship.

Trumps trade war is counterproductive and will be diffi cult to sustain because many of the administrations tariff targets are on products manufactured by U.S. joint ventures in China. Bluntly stated， it is wishful thinking on the part of the United States to believe that China will stand idly by and allow these tariffs to curb either Chinas position within the world economy or its technological progress.

Miscalculations

It is quite significant that the U.S. Chamber of Commerce—the largest U.S. business group and an organization that has supported Trumps tax cuts and other economic policies—came out in strong opposition to his tariff policies by stating that it could spark a trade war and ultimately derail both the U.S. and global economies. However， the chambers opposition to Trumps tariff policies doesnt seem to faze him. Trump seems more than willing to ignore it and other critics in order to pursue a full-blown trade war because it serves his personal political interests. China-U.S. relations， U.S. relations with other trading partners， the global economy and even Republicans in Congress are irrelevant to him. What is important to him are his political base， the 2018 U.S. midterm elections and his own reelection bid in 2020.

While Trump stated that his actions are aimed at promoting trade fairness， in reality his actions are designed to fulfill campaign promises to “get tough on China.” This will satisfy the supporters who elected him and still fervently support him， and who are ostensibly willing to endure short-term pain for supposed long-term gain on U.S. trade imbalances and repatriated domestic manufacturing jobs.

Just because Trumps trade policies could easily trigger an economic backlash does not mean that his voters will abandon him en masse. They wont. This should be watched carefully because Trump has consistently told these voters that hes fighting for them. This means that it will not matter to Trump that tariffs are a zero-sum game， make for a poor negotiating tactic that penalizes U.S. consumers with higher commodity prices， reduce U.S. business access to markets， or adversely impact the global economy.

Based on Trumps own words， he thinks that hes winning and that the negative effects of U.S. tariffs are overblown. After all， this is a man who seems quite enamored by failed U.S. trade policies of the late 1920s and early 1930s， declaring that China is an “economic aggressor.”

Frankly， Trump really has no idea what he is doing when it comes to trade and thinks that bullying other countries is a great strategy. His willingness to engage in unilateralism and threats to abandon fundamental WTO rules underscore this mindset.

While it appears to be an impossibility， it would be helpful if someone who has Trumps ear and supports free trade would try to remind him of the lessons that he was supposedly taught as an economics major in university： By taxing trade and reducing the amount of trade， the United States is actually reducing its ability to grow and is weakening its global export competitiveness， to say nothing of its credibility. Sadly， it does not appear that there is anything at this point that can convince Trump to turn away from the path of additional tariffs and deepening protectionism.

There is a worrisome rising tide of anti-China rhetoric both from the Trump administration， U.S. Congress and the U.S. media. When the White House released a report like Chinas“economic aggression，” it created an unsavory narrative regarding China-U.S. political and economic relations. Given this rhetoric， it is not surprising that Trump has imposed his tariffs and is quite happy to escalate a trade war with China. Lamentably， Trumps trade war is based on a simplistic understanding of the trade balance between China and the United States.

By expanding tariffs on additional Chinese goods and products， it will ultimately result in failure because it will negatively impact U.S. consumers who will end up spending more on U.S.-made products and less on Chinese-made products， while Chinese citizens and others will spend less on U.S.-made products. Yet Trump somehow still thinks hes winning.