The Global Economy Needs Fixing, but Tariffs and a Trade War Won’t 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’s a lot of posturing and scrambling among industry players until things are smoothed over.

That’s what normally happens. Then there’s what happens under President Trump, which could be described as government-by-personal-grievance. There’s a lot of background to Trump’s surprise decision to impose tariffs on steel and aluminum imports, none of it comforting—his chief economic adviser Gary Cohn advised against the move, and now he’s 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 (not necessarily a bad thing) 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’t 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’s 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—especially using the blunt instruments of a trade war—will hurt those businesses and their workers.

And, significantly, it won’t 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’s punishing China for stealing our jobs. It’s a recurring theme with him, starting during the presidential campaign. If the tariffs weren’t enough, on Tuesday the administration announced it was looking to restrict a wide array of Chinese imports 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 7080 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’t selling more than it’s consuming, we’re 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’s district, and Kentucky bourbon makers in Senate Majority Leader Mitch McConnell’s home state.

That’s 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 direct employment in the auto industry, about 1 million jobs, and aerospace manufacturing, about 500,000 jobs. Both of those industries rely on steel and aluminum, some of which is imported. And don’t 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, we import nearly four times as much steel as we export. 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’t 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’t begin to address the effects of the likely retaliatory responses from other countries. We need the metal. Trump has an established record of using foreign steel in his own buildings, after all.

But let’s 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’ve also seen manufacturing jobs moving overseas because of globalization (though possibly more jobs have been lost to automation). 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’re 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 minimize harmful environmental effects. Public companies are rewarded on Wall Street when they do these things.

We treat trade deals the same way. They’re about cutting barriers to trade, reducing taxes, and increasing the flow of goods and capital. Labor isn’t at the table, usually, and neither are the people working for a clean environment or public amenities. It’s all about profit, and that’s the problem.

It’s probably too late for the Trump administration to avoid the damage it’s causing—exempting Canada and Mexico temporarily while we “renegotiate” 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’s any silver lining, it’s 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’s 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.

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