The Global Economy Needs Fixing, but Tariffs and a Trade War Won鈥檛 Do That
Trade wars can be disastrous for economies. They happen periodically usually because well-intentioned government officials look to shore up some homegrown industry, which triggers an unpredicted response from a once-friendly country on whom we depend for something important. Like trade.
Then there鈥檚 a lot of posturing and scrambling among industry players until things are smoothed over.
That鈥檚 what normally happens. Then there鈥檚 what happens under President Trump, which could be described as government-by-personal-grievance. There鈥檚 a lot of background to imports, none of it comforting鈥攈is chief economic adviser Gary Cohn advised against the move, and now he鈥檚 resigning.
There are two things at work here: One is the wrong-headedness of this particular policy decision in trying to address a trade deficit () and to create economic growth. The second is that, while it is true U.S. steelworkers (and those in many other manufacturing industries) have been hammered by increased globalization, taking a swipe at the underpinnings of the global economy isn鈥檛 going to cause American jobs to come back. Probably it will lead to more losses.
It is true that global free trade has been devastating for many workers, but it鈥檚 also provided some benefits to a variety of supply-chain businesses and their workers, as businesses have had 25 years of NAFTA and continued global cooperation to adapt and build upon that trade infrastructure. Abruptly taking away that foundation鈥攅specially using the blunt instruments of a trade war鈥攚ill hurt those businesses and their workers.
And, significantly, it won鈥檛 do anything to help build a new foundation for a national and world economy that allows businesses to succeed while being fair to workers and less exploitative of the environment.
Trump thinks he鈥檚 punishing China for stealing our jobs. It鈥檚 a recurring theme with him, starting during the presidential campaign. If the tariffs weren鈥檛 enough, on Tuesday the administration announced it was looking to in retaliation of intellectual property theft. To which the question might be posed: Where is Walmart, the largest private employer in the country, going to get its products, an estimated 鈥 percent of which now come from China?
Apparently, in the zero-sum world in which Trump lives, if America, the largest consumer economy on the planet, isn鈥檛 selling more than it鈥檚 consuming, we鈥檙e losers.
The new steel and aluminum tariffs have been met with promises by our trading partners to impose tariffs on American-made imports made in locations that appear designed to exert maximum political pressure on the White House: the European Union, for example, is looking at hitting back against Harley-Davidson, based in Milwaukee, rather close to House Speaker Paul Ryan鈥檚 district, and Kentucky bourbon makers in Senate Majority Leader Mitch McConnell鈥檚 home state.
That鈥檚 a trade war.
Trump claims the tariffs are meant to protect steel and aluminum production in the U.S., which accounts for only about 142,000 jobs, according to the U.S. Bureau of Labor Statistics. Compare that to jobs, and aerospace manufacturing, about 500,000 jobs. Both of those industries rely on steel and aluminum, some of which is imported. And don鈥檛 forget the feeder industries: the manufacturers of machine tools, nuts and bolts, and other widgets that are purchased by the aerospace and auto industries to make their products, which account for millions more jobs. Consider also the manufacturers of appliances, soda cans, bicycles, office buildings, streetlights, oil pipelines, golf clubs. We buy a lot of metal to make things.
Looked at another way, . The five largest foreign suppliers of steel make up about 60 percent of our imports: Canada, the European Union, South Korea, Brazil, and Russia. China is by far the largest producer of steel in the world, but it only accounts for about 7 percent of U.S. imports.
A trade war won鈥檛 do much to address deficits or provide jobs, but it will make prices for steel and aluminum and products made from them go up. And that doesn鈥檛 begin to address the effects of the likely retaliatory responses from other countries. We need the metal. Trump has an established record of , after all.
But let鈥檚 take a different view of the situation. We do have a problem with globalization, which encourages businesses to seek out the cheapest products. This is why Walmart is in China in the first place, and why Trump uses foreign steel for his hotels.
We鈥檝e also seen manufacturing jobs (though possibly more ). And the relentless race to make all our products as cheaply as possible in the countries with the least restrictions on pollution and working conditions has contributed to accelerating climate change.
In sum, globalization has led to the hollowing out of the American middle class and redistribution of wealth to the very rich.
The thing is, all the problems we have that are related to increasing globalization are not because we have globalization, but rather because we鈥檙e doing globalization badly.
What would have saved many of those jobs, whether on a state or local policy level or in the crafting of international trade agreements, is the commitment to keep jobs in the U.S. and well-compensated, a tax structure that favors companies who hire locally and pay well and punishes those who skirt labor and environmental laws.
Instead, we have an economy that favors companies that put profits over people, cutting costs such as payroll, benefits, workforce, and operating in ways that contribute to harmful environmental effects. Public companies are rewarded on Wall Street when they do these things.
We treat trade deals the same way. They鈥檙e about cutting barriers to trade, reducing taxes, and increasing the flow of goods and capital. Labor isn鈥檛 at the table, usually, and neither are the people working for a clean environment or public amenities. It鈥檚 all about profit, and that鈥檚 the problem.
It鈥檚 probably too late for the Trump administration to avoid the damage it鈥檚 causing鈥攅xempting Canada and Mexico temporarily while we 鈥渞enegotiate鈥 NAFTA is hardly going to mitigate wider-ranging effects, if only because Canada and Mexico have no intention of renegotiating NAFTA. At least, not with Trump.
If there鈥檚 any silver lining, it鈥檚 that out of this chaos may come an opportunity to rebuild globalized systems that are fair. That could be one of the top priorities for the next administration. It鈥檚 unclear what exactly those new systems would look like, but it will be better than unfettered globalization, and a lot better than a lose-lose trade war.
Chris Winters
is a senior editor at 猫咪社区!, where he specializes in covering democracy and the economy. Chris has been a journalist for more than 20 years, writing for newspapers and magazines in the Seattle area. He鈥檚 covered everything from city council meetings to natural disasters, local to national news, and won numerous awards for his work. He is based in Seattle, and speaks English and Hungarian.
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