The best way to win a trade war is to not start one

The best way to win a trade war is to not start one
Chinese President Xi Jinping, right, holds a grand ceremony to welcome U.S. President Donald Trump in Beijing on November 9, 2017. (Pang Xinglei /Xinhua / TNS)

A day after his comments about imposing stiff tariffs on imported steel and aluminum caused the stock market to plummet, President Trump took to Twitter on Friday morning to calm investors. "When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," the president counseled.

Economists across the country reacted by spewing their coffee in horror.


At least Trump acknowledges that a trade war would ensue if he follows through on his threat to slap a 25% tariff on steel imports and a 10% tariff on imported aluminum in the name of national security. Other countries would waste no time retaliating, and the economic conflagration would begin.

The tariff push looks less like an effort to preserve national security than a cynical and costly effort to keep a campaign promise to Trump’s base.

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But neither Trump nor some of his key advisors are being realistic about the consequences of a trade war. Commerce Secretary Wilbur Ross, a former financier whose iron-clad faith in tariffs has proved an impregnable barrier to the lessons of history, argued on CNBC Friday that tariffs on steel and aluminum would cause a scarcely noticeable increase in the price of U.S. products, while any damage to U.S. exports would be negligible because our goods are well-nigh irreplaceable in the global market. In other words, there's no reason not to start a trade war because, heh heh heh, we can't lose!

Again, picture hot liquids erupting from the mouths of economists, historians and business executives outside the U.S. aluminum and steel industries.

It's easy to see why Trump is concerned about those industries. The metals are used in a dizzying array of products, from skyscrapers to jet fighters to laptops. And over the past five decades, as the production of steel and aluminum has exploded in Asia (especially China), it has slowly faded in the United States, causing the U.S. market share to shrink dramatically.

U.S. steel and aluminum producers have adapted by shifting to more specialized and sophisticated versions of the products, while also replacing more human labor with automation. Productivity has gone up, but the human cost has been enormous; since 1990, employment at steel and iron mills and primary metals plans has dropped 45%, according to the Bureau of Labor Statistics.

You can't fault Trump for wanting to help the workers whose lives have been disrupted by those forces. They would be well served by far better U.S. efforts to enforce global trade rules and to retrain workers for new careers. The solution Trump is pursuing, however, won't provide the relief he's promising. Instead, it's bound to make things worse for everyone.

Imposing stiff tariffs on the steel and aluminum produced by any and all of our trading partners will draw responses from around the world — in steel alone, 50 countries made the World Steel Assn.'s list of major producers. And retaliatory sanctions won't necessarily be aimed at big U.S. exports like soybeans; instead, economists say, they'll be targeted to inflict maximum economic and political damage. And no exported product or service will be immune. The president of the European Commission, for example, threatened to retaliate against products from states represented by top U.S. lawmakers, such as Kentucky bourbon, Harley-Davidson motorcycles and bluejeans.

As for Ross' claim that demand for U.S. products is so strong, it wouldn't be diminished even in a trade war, the facts suggest otherwise. The U.S. is indeed a prodigious exporter of goods and services, ranking second behind China in 2016. But its goods make up less than one-tenth of the products and one-sixth of the services traded globally. So it's absurd to suggest that if China, say, slaps a quota on U.S.-branded smartphones, other producers wouldn't plug the gap — or that demand from other countries would surge to make up for China's cutbacks.

Besides, the rationale Trump cites for imposing global tariffs on steel and aluminum — that U.S. has a national security interest in preserving American producers of the metals — ignores how the Defense Department has developed secure supplies outside the United States, in countries that are our allies. That approach preserves a friendly supply of crucial metals (and many other products) even if U.S. production wanes. A global tariff on steel and aluminum, on the other hand, would punish those secure sources too. The tariff push looks less like an effort to preserve national security than a cynical and costly effort to keep a campaign promise to Trump's base.

Trade wars, like shooting wars, are waged to inflict casualties. And like shooting wars, they tend to escalate. So the best approach is not to start one.

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