How easy to win are trade wars?
Vainglorious boaster President Trump, having declared trade war against much of the developed world, assured us that trade wars are easy to win.
?? Maybe, and maybe not. I’m no economist, but I have noticed that the majority of mainstream economists and many business leaders have opined that trade wars are bad for everyone. They are particularly bad when they slow down the global economy as a whole, in an age where the global economy is increasingly THE economy that really matters in the long run.
On the other hand, seasoned economist Irwin Stelzer proposed that Trump’s trade war “really might be easy to win.” Stelzer on trade war
The basis of Stelzer’s conjecture is that the U.S. economy dwarfs that of any one of its economic adversaries (euphemistically called “trading partners”), excepting China, and they need the U.S. market more than the U.S. needs theirs. Secondly, if foreign tariffs really were as relatively disadvantageous to us as Trump claims (and Stelzer seems to agree), greater parity could put those foreigners on the ropes. As Stelzer points out, a German auto industry’s proposal to eliminate tariffs is a sign that some foreign businesses are seeing trouble ahead with the status quo. The status quo is that EU tariffs on U.S. automobiles have been five times that of the America’s on theirs.
Canada, despite a surge of anti-Trump sentiment in response to Trump dissing PM Justin Trudeau several times over, is in a seriously tight bind. Canadians may cry “buy Canadian” in a spurt of national pique, but if Trump puts up tariff walls against imports of Canadian cars and auto parts, the Canadian public’s Canada First fervor will cool off. Europe is in a better position, but a trade war will likely hurt them more than it hurts us.
Win (easily?) or lose, it’s a big gamble
When Donald Trump was going through six bankruptcies in building his putative real estate “empire,” he had the power of the state to protect him from financial collapse, and from more drastic “enforcement” collection measures that might be taken by less-than-scrupulous creditors. Debtors’ prisons were outlawed in the U.S. in 1833, and bankruptcy laws stepped in.** But in international trade, there is no state authority a level up that can step in to protect the U.S. economy against a downward slide, or conceivable collapse. In this case, the buck really DOES stop at Trump’s desk—unless he finds a way to blame others that will stick. (Undoubtedly, if there’s a train wreck, he will try his mightiest to shift blame.)
When Trump’s creditors were just private companies, the consequences of his business failures were limited to a small fraction of the overall economy. However, the other people’s money he is gambling with in his trade war is coming from all of us, the American public.
When is a “win” a win?
Trump likes hurting people—given his psychology, I wonder if the desire to inflict pain is the primary impetus to his trade war. He gets to hurt people in other countries while posing as the savior of American industry and getting cheered on by his trusting base. (Many of whom, when questioned about the wisdom of his trade policy, trot out the deep proposition, “he’s a successful businessman, so he must know what he’s doing.” Right.)
Following this line of thinking, it’s quite possible that his gut—”I’m gonna make them suffer”—had more of an influence on Trump’s trade policy than rationality. Not the best way to design an economic policy.
Over a span of a few years, if Trump keeps at it, he may force our trading “partners” to cry uncle. Such a short-term economic success could, perish the thought, enable him to win the 2020 election.
However, if the trade wars were to succeed quickly, one outcome is inevitably a slowdown of the global economy. The question is where the pain will be felt most, and how soon. Trump seems to believe the U.S. can easily ride out the storm, but if he’s wrong there’ll be financial hell to pay. That’s lose-lose, as most economists seem to be saying.
How does a short-term win get degraded to loss over time?
Even suppose Trump “wins” the trade war without a significant global slowdown, the downward spiral of our foreign relations in general (i.e. in matters not involved with trade) do not bode well for an upward-trending economic picture. There is, needless to say, a buildup of resentment and ill-will abroad, among our friends as well as enemies. The trade battle is just another aspect of Trump’s bullying, and will stain our relationships with foreign countries, and their citizens, for years to come.
One impact already occurring is the deterrence of foreign students from coming to the U.S. for their higher education. The rest of the world is getting the impression that non-citizens—especially non-white non-citizens—are not welcome here. That includes Europeans who may pass the skin-color test, but would feel ill at ease spending time in a mean-spirited country. Not only does higher education in the U.S. enjoy a trade surplus, but also foreign students who get educated in the U.S. often decide to stay, and many like it well enough that they remain on green cards and/or apply for citizenship. If they stay away, or get their education and then immediately return to their homes, and the U.S. pre-college education in science and technology continues to lag behind that of most developed countries, we will be experiencing not a brain drain but a brain stunting.
If what I hear anecdotally on the news is even half true, it presages a future of decline in the American information economy. That might be staved off by the private sector—say, Google doubling its workforce by hiring foreigners who are shoe-ins for citizenship. But as global interconnectedness builds, it could expand its workforce by hiring foreigners and putting them in tech installations abroad. No need for them to come live in the land of the xenophobes.
If the world turns away from America, a short-term trade “win” will turn into a bad economic dream.
Long-term, the rest of the world may decide there are too many uncertainties in trading with the U.S. and re-arrange their partnerships. Trump is making trade a zero-sum game where the rules are whatever he says they are, on any particular day, and if they can find a way around that game, they will. Emerging economies such as India’s, Indonesia’s, and Brazil’s, have been sputtering, but they still represent a lot of customers. India, after all, is already into space! See What’s next for India in space
For more on India’s strides in the tech sector, check out this from the World Economic Forum: India’s rise in technology .
Finally, Trump’s trade tactics are focused on material Stuff,*** and in the evolution of the economy in the advanced world, Stuff is becoming less valuable in comparison with knowledge, particularly in science and technology. Advances in genetics don’t require a lot of Stuff, nor do advances in all the ways technology is finding out how to do more with less. Bad for the U.S., good news for countries investing more in science than Stuff. We are steadily approaching the limits of growth in Stuff (assuming we want a planet people would like to live on), but there are no limits to science and innovation. As has been speculated by futurists whose names I apologetically forget, experiences (learning, travel, game-playing, Virtual Reality) will become the coin of greatest value.
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* China is probably still a “partner” in Trump’s mind because it’s too big to bully.
** Note that a variety of de facto debtors’ prisons do now exist for persons lower down on the economic food chain than Trump and his ilk. These days, indigent defendants are jailed for such infractions as not paying a medical bill (thanks to our inequitable health system), or not paying a traffic fine. Once jailed, they are unable to work in order to pay off their debts. See
Debtors prisons still in existence
*** If you haven’t seen Annie Leonard’s video, The Story of Stuff, you should try it at Leonard Story of Stuff She’s funny, vivacious, and tells a very serious story in a brisk and entertaining way.