It’s on: A trade war with our allies

Yesterday, President Trump imposed tariffs on steel and aluminum from Canada, Mexico, and the European Union. These U.S. allies promptly hit back.

The EU said it would impose import taxes on, among other items, bourbon (this means you, Mitch McConnell). Mexico said it would levy tariffs on American farm products. Canada is set to impose tariffs on dozens of U.S. products including not just steel and aluminum products but also consumer products ranging from ketchup to dishwasher detergent to boats to toilet paper to playing cards to insecticide to washing machines.

Trump’s decision met with disapproval from prominent congressional Republicans including Speaker Paul Ryan and Sen. Orrin Hatch. Sen. Ben Sasse said:

This is dumb. Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents.

Sasse is right, but too generous to Trump. As it stands now, the president is treating our allies worse than he’s treating China. According to Heather Long of the Washington Post, a year and a half into his presidency, Trump has put more tariffs on longtime U.S. allies than he has on China.

China, though, is the primary culprit when it comes to trade relations. It’s the primary culprit partly because of traditional trade issues, but mostly because of the war it’s waging on our technology sector.

Even when it comes to steel, China lies at the root of the problem. Our steel industry is ailing because of a global surplus. According to the Commerce Department, the worldwide industry produces 700 million more tons of steel than customers need. Naturally, this surplus depresses prices, hurting U.S. manufacturers.

According to the Post, most analysts blame the surplus on excess Chinese investment in steel production. But when Commerce Secretary Wilbur Ross negotiated voluntary reductions in worldwide steel capacity, Trump rejected the deal.

China does not export much steel into the U.S. Thus, Trump’s tariffs will have little direct impact on China. It’s possible that our allies are purchasing Chinese steel and shipping it here, but I’m not aware of evidence that this practice is widespread.

Professor Douglas Irwin, a conservative, is a star in Dartmouth College’s stellar economics department. He’s the author of a history of U.S. trade policy since 1963. Irwin had this to say about Trump’s decision:

It’s more than highly unusual. It’s unprecedented to have gone after so many U.S. allies and trading partners, alienating them and forcing them to retaliate. It’s hard to see how the U.S. is going to come out well from this whole exercise.

The U.S. might come out well if Wilbur Ross is able to leverage the tariffs into favorable deals with the EU, Canada, and Mexico. Using the threat of tariffs, Ross was able to negotiate voluntary export limits with South Korea, Argentina, Brazil, and Australia. But Mexico, Canada, the our EU allies won’t be eager to back down to a U.S. president whom they despise and who is massively unpopular among their constituents.

It’s easier for me to see this ending badly. Quite apart from retaliation by our allies, the tariffs will raise the price of a multitude of products that use steel. Moreover, chemical manufacturers, brewers, footwear manufacturers, and auto companies warn that the tariffs will cost several jobs for every one that’s created in the steel and aluminum sector.

The deleterious effects of retaliatory tariffs imposed on our exports are obvious. And let’s not forget that we could use the help of the EU and Canada in dealing with China, the real villain of the piece. We won’t get it while we’re fighting a trade war with these entities.

One of the major differences between Democrats and Republicans has long been that Republicans treat their allies like friends and their enemies like enemies. Democrats, not so much.

I view Trump as falling well within this particular Republican tradition. However, that doesn’t appear to be the case when it comes to trade.

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