Trump plays with fire on trade
With his announcement last week of broad tariffs on imported steel and aluminum, President Trump launched what could be the first salvo of an all-out global trade war. Seemingly itching for a fight, he gleefully tweeted that “Trade wars are good, and easy to win.” It seems like Trump thinks the conflict will play out much like Ronald Reagan’s 1983 week-long invasion of Grenada rather than the more telling quagmires that unfolded in Vietnam, Afghanistan and Iraq. He’s wrong.
Apart from overestimating America's bargaining position, Trump and his supporters grossly misunderstand the nature of international trade and how Americans have benefited from a system that has allowed us to continually consume foreign goods on credit. While this “benefit” has also placed a cost on domestic industries, I don’t believe that Trump has any idea how a trade war can reduce current American living standards.
As justification for his surprise offensive, Trump likes to highlight how America’s gargantuan annual trade deficit (which has grown to more than $600 billion during his presidency) is simply the yardstick by which “stupid” American trade policies are subsidizing foreign economies. In his mind tariffs are just a means to take back what we have foolishly given away. As Trump explained via Twitter “ When we are down $100 billion with a certain country and they get cute, don’t trade anymore - we win big.” But does a country with a trade deficit really subsidize the country with the surplus? Or is it the other way around?
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