Today’s “Planet Earth Report” –Trade Wars and the ‘Law of Unintended Consequences’

 

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The Smoot-Hawley Tariff imposed by the U.S. in 1930 slapped 20 percent tariffs on 20,000 kinds of imported products mostly from Europe. It set off a wave of trade protectionism. Global trade fell by about two-thirds in four years during the epic event we call the Great Depression.


"A trade war is indeed “easy to win”—if you’re taxing imports from, say, a tiny island led by a weak government going into an uncertain election with no means of bailing out its weakened industries. China has none of those distinctions. It is a massive socialist market economy, led by an undemocratic leadership facing no electoral pressure, which spends oodles of money subsidizing its domestic businesses, all the time. As film buffs know, “Never get involved in a land war in Asia” refers to one of history’s classic blunders; only slightly less well-known is “Never go in against a socialist market economy when midterms are on the line.”

 

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“Trade wars are good and easy to win,” Trump has said. Let’s consider those adjectives, one at a time, continues Derek Thompson in The Atlantic. First, trade wars aren’t “good” in any meaningful sense of the word. The damage from Trump’s tariffs has been widely reported. Harley-Davidson announced that it will move some production overseas to offset European Union tariffs. Banks have postponed investments in new American factories for fear that they’ll be caught in the crossfire. Whiskey distilleries are worried that new tariffs will dry up exports to Asia and Europe.

Maybe none of these fears will materialize and, in six months, the effects of these tariffs will be barely perceptible. Or maybe Trump will look up to see the ball in the back of his own net: Of the 30 congressional districts hit hardest by China's retaliatory tariffs, 25 voted for Trump.

So what exactly is President Trump trying to accomplish here? It’s important to state that American and European companies have real gripes with China, which has spied on foreign companies and forced Western tech firms to hand over patented technology as a condition for selling into the Chinese market. Pressuring China to change course will take a coordinated global effort, a careful construction of alliances around the world, and a cautious approach to nudging China toward lowering its barriers to entry.

But rather than cultivating alliances, Trump is smashing them left and right. He’s raised taxes on steel imports from Canada and the EU and trashed the nato alliance, at the very time that the China problem begs for international assistance. The tactics and the strategy are going in opposite directions.

“Trump is inflicting genuine economic costs on the country without necessarily achieving any particular goals,” says Josh Meltzer, a senior fellow in the Global Economy and Development program at the Brookings Institution. “Instead, we’ve raised tariffs on our allies and alienated them, which has allowed China to portray us as the global outlier.”

In the larger analysis, Trump’s presidency and Chinese trade have a significant, if latent, historical connection. In the early 2000s, Americans started buying significantly more goods from China after it joined the World Trade Organization, in 2001. Prices fell for most consumers, but exposure to the Chinese market also destroyed millions of jobs, especially in cities with a large manufacturing presence.

Years later, those very cities became significantly more likely to vote for Donald Trump, according to research by the economist David Autor. So it is not hyperbolic to say that trade with China, and its effect on the labor force, helped elect Trump.

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