Raising taxes on everything from homes to cars to beer is not normally considered good policy or good politics. But that’s exactly what President Trump said Thursday he intends to do.
Trump used the word “tariff” to describe what he’s raising on imported steel and aluminum, but that’s just a fancy word for “tax.” Like all business taxes, tariffs eventually get passed along to individuals. And the price of a tariff is particularly likely to be borne by consumers.
The president doesn’t seem to understand that, given his early morning tweeting today:
To paraphrase a famous saying, every word of that is a lie, including “good” and “easy.”
Start with the fact that we don’t “los(e) many billions of dollars on trade.” First of all, we get something for that money: namely, goods or services. There’s also the fact that trade deficits also represent capital surpluses. If we have a yuuuuge trade deficit, that means we also have a yuuuuge amount of capital coming back into our country as investments.
Then there are the twin falsehoods that “trade wars are good” and that they’re “easy to win.” There are no winners in trade wars. Consumers pay more, and the nations targeted by the new tariffs (and other trade restrictions) almost always retaliate -- usually at a different industry that is even more valuable to the country imposing the new tariff. American farmers, for example, could be slapped with new tariffs by countries that import a lot of their products but export a lot of steel and aluminum. In 2002, after President Bush imposed tariffs on steel imports, the European Union retaliated against American products including orange juice, textiles and motorcycles. This time around, one additional reported target is bourbon from Kentucky -- which happens to be the home state of the Senate majority leader. The political nature of those targets is no accident.
As for the “easy” part, let’s revist those 2002 tariffs. Not only did they harm U.S. consumers and scarcely move the needle on U.S. steel production beyond the broader growth of the economy. Other countries retaliated, and then went the added step of suing us at the World Trade Organization. We lost and were penalized by a record $2 billion in sanctions. Less than two years after imposing the tariff, the Bush administration withdrew it. (Yet, U.S. steel production remained higher than it was in 2002 until the start of the recession.) It’s safe to say the U.S. lost that trade war, and there’s no reason to believe this time will be any different.
Speaking of recessions, they’re a greater risk during trade wars. The most notorious example is the 1930 Smoot-Hawley tariff, which turned a sharp global recession into a catastrophic depresssion. The global economy is on better footing today, as is the U.S. economy. But that can change and, judging by history, is due to do so. It’s incredibly irresponsible to pursue a policy that would hasten that reckoning.
The mediocre recovery since 2009 left a lot of Americans feeling like things hadn’t really gotten better, even if the pace has been picking up of late. It was an uneven recovery with a lot of industries and workers lagging behind. The protectionist impulse in such times is strong. It’s also wrong, every time.
The stock markets dropped sharply Thursday after Trump’s announcement, a selloff repeated overseas and in the early trading hours Friday. That won’t be the only place we feel the effects of this blunder, and the ripples won’t go away anytime soon.