Military historians generally believe that World War II was lost by the Germans waging a
two-front war. In the West, it fought against the UK, France, and the rest while it simultaneously fought Russia in the East. Not being a close follower of military history, Donald "Trade Wars are Good and Easy to Win" Trump has now simultaneously declared war not on two but three fronts: against China (by vowing to make good on slapping tariffs on $50B worth of Chinese imports), the European Union, and North America (by not renewing exemptions from steel and aluminum in June).
Can Trump Make America Great Again through US Against the World? Jeffrey Sachs believes Trump has gone
insane and that the obvious answer is "no" in calling for Trump to be relieved of office:
The US has probably never before had a
delusional President, one who speaks gibberish, insults those around him
including his closest associates, and baffles the world. By instinct,
we strive to make sense of Trump's nonsense, implicitly assuming some
hidden strategy. There is none.
Trump's trade actions are blatantly
illegal.
They are flimsily justified as an act of national security, but this is
sheer nonsense. They are also fatuous in terms of US economic and
geopolitical interests. Harming our closest allies, raising the prices
on key intermediate products, and provoking retaliation cannot possibly
deliver higher wages, better jobs, or an improved trade balance.
Trump's latest notion to slap tariffs on German automobiles would be
even more damaging geopolitically.
Jeffrey Frankel, like most other sensible observers, also sees
folly in Trump's nonsensical moves:
But the economics would be illusory.
There would be virtually no effect on the overall U.S. trade deficit: We
would otherwise sell the natural gas to some other country, and in
reality those smartphones already get about 95 percent
of their value added from South Korea, the United States and other
countries anyway. Focusing on the bilateral balance is a waste of time.
Regardless what happens with China, the overall U.S. trade deficit will
rise this year as a result of the Republican tax cuts, enacted at a time when the economy is already producing at the limit of its capacity.
Similarly
unmoored from both economic and legal logic are the tariffs that Trump
has imposed on imports of steel and aluminum, and threatens to impose on
automobiles and other goods. With respect to legal criteria, the
national security justification that he has invoked is flimsy in the
extreme and will likely inspire other countries to retaliate. With
respect to economic criteria, the beneficiaries in the steel industry,
for example, are vastly outnumbered by those who will be hurt because
they use steel as inputs, they consume the final product, or they
produce export goods that will be hit by the repercussions, such as
farmers.
Anyway, on to the belligerents. Take, for instance, slapping unexpected steel and aluminum tariffs on Canada and Mexico after Canada's PM Justin Trudeau flat refused to have NAFTA
renegotiated every five years (as he should):
The White House launched a round of strong-arm tactics Tuesday when
Vice President Mike Pence called Justin Trudeau and issued an ultimatum:
A reworked NAFTA deal would need to be renewed every five years. In
response, Trudeau canceled a trip to the U.S. Then on Wednesday, the Trump administration announced surprise steel
and aluminum tariffs on Canada and Mexico. And on Thursday and Friday,
President Donald Trump bashed Canada’s trade practices.
The White House is hoping the campaign of aggression will cause Canada
and Mexico to cave as talks to renegotiate the 25-year-old NAFTA
agreement are plagued by standoffs and delays. But instead, the moves
could backfire as Canada and Mexico retaliate with their own tariffs,
leading to a stalemate that would result in Trump pulling out of NAFTA
altogether.
The other NAFTA countries are now engaged in a retaliatory tariff slapping frenzy:
Starting July 1, Canada will impose duties on about $12.8 billion
worth of U.S. imports. The tariffs will target steel and aluminum
imports from the U.S., but also agricultural and manufactured goods like
cucumbers, laundry detergent and mattresses.
Mexico also said it would impose tariffs on $8 billion in American
pork, blueberries, lamps and other goods. Mexican Economy Secretary
Ildefonso Guajardo told reporters on the sidelines of a summit in Paris
that his government is taking the action under the rules of NAFTA, which
will allow the country to impose its retaliatory tariffs immediately,
as soon as early next week.
Not content with irking the normally placid Canadians, the Yanks are making Europeans also
deal with the same steel and aluminum tariffs. More specious measures are said to be forthcoming on "national security" grounds on Germans cars:
Mr Trump had warned before Thursday’s decision that any EU
countermeasures would be responded to in kind — a message reaffirmed by
US officials in recent contacts with European diplomats. The US administration in May announced an investigation into whether car imports pose a national security risk—
a probe that is being eyed warily in Germany and elsewhere, as auto
tariffs pose a much larger potential threat to the EU than the steel and
aluminium duties. Germany, for example, accounted for just 4 per cent,
or about $1.2bn, of the US’s $29bn in steel imports last year. But the
US imported $20.2bn worth of cars from Germany and a further $8.6bn from
the UK.
We'll see how the third round of China-US trade talks will go the next
few days, but the writing appears to be on the wall already. As many
have observed, the US trade actions are
unlikely to be upheld at the
World Trade Organization. Following
China and
India, the European Union has just
initiated a
case at the WTO against these steel and aluminum tariffs.
Given Trump's
unrivaled ability to offend everyone--others Asians like China and Japan
included over steel and aluminum alone--I would expect the rest to consolidate their cases against America. An interesting aspect here is that Trump is potentially
driving the Europeans into the arms of China now since the EU has traditionally had complaints about the PRC more similar to those of the United States concerning the overproduction and dumping of Chinese steel and other goods. America will be left with no real major economic allies, be they Asian, European, or North American.
Let's further assume that the Europeans and the others win their WTO case(s) against the United States. These things take time. It may be that the case stretches into the 2020 US presidential elections when a less protectionist candidate wins--it's hard to imagine anyone
more protectionist than Trump. The more "exciting" outcome would be the US losing its case while Trump is still president, in which case the US will probably just ignore the WTO ruling. It has done so in the past, and Trump has already
pledged to ignore those it sees as "anti-US". With that result, we must return to the idea that Trump's intent,
knowing full well that his trade policies are WTO-illegal, is to
blow up the institution. Here, the question would be how long it is before a more conventional American leader is put in place to shore up an institution the United States thought up in the first place.
So, can the US "win" a three-front trade war? Two was already a stretch going by conventional wars; three is probably a step even beyond "too far already". In the end, the losers here are probably everyone involved as history suggests there are no real victors in these trade wars.
