♠ Posted by Emmanuel in Trade at 1/30/2017 04:43:00 PM
|The infantile Trump time travels back to the Great Depression and wishes things now are the way they were then.|
We are getting a flavor of it already with Mexico and the tweet war. The question is, when does Trump's administration begin implementing discriminatory policies against the likes of China and Mexico? Unfortunately, much power has been vested in the executive for the sensible reason that, prior to Trump, no postwar American president has tempted fate by inviting a trade war. With Trump at the controls, however, there's no telling what depths of protectionism he'll sink to and how far down he'll drag down the rest of the world.
The Sydney Morning Herald imagines the not-so-unimaginable scenario of Trump dragging the world back to the interwar years between WWI and WWII. When countries could not obtain what they needed by trade, they did by war. How far back in time Trump takes the world can be measured by the tariff levels he sets:
A retreat to protectionism would indeed mark a stark reversal of the trend of the past half-century, which has, since the signing of the General Agreement on Tariffs and Trade in 1947, been marked by countries cutting tariffs and other trade barriers. Average tariffs have fallen to about 5 per cent, down about 22 per cent in the immediate post-World War II era.It then goes with the discretion of the president over trade matters...
Trump's 20 per cent Mexican tariff would transport the world back 70 years. A 45 per cent China tariff would take us back almost a century to the 1930 Smoot-Hawley Tariff Act, which imposed tariffs in excess of 50 per cent. This protectionist act – named after two Republican senators and signed by a Republican president, Herbert Hoover – caused a slump in US exports as other countries retaliated and is widely accepted to have prolonged the Great Depression.
Various US laws grant the President the unilateral power to impose tariffs, including the hundred-year-old 1917 Trading with the Enemy Act. What would happen then? Well, retaliation would be swift. As a member of the World Trade Organisation (the great-great-grandson of GATT), any move by the US to impose a discriminatory tariff would trigger rights for other countries to retaliate. It'd be 1930 all over again. If other countries slap tariffs on American goods, this would hurt US exports and tend to increase the US trade deficit, the very thing Trump seeks to shrink....before ending with the obvious point that nobody really "wins" in a trade war:
While some special interests may be protected, global consumers – Americans foremost among them – would pay more to live, while also missing out on the opportunity to be employed by genuinely productive firms, specialised in what their country is relatively best at producing, and thus with long-term prospects and the ability to pay higher wages. It would be one of the biggest deliberate campaigns to destroy wealth in modern history. We must hope President Trump keeps his finger off the trade war trigger. Only time will tell how MAD this president really is.