Trump’s Tariff Can’t Start A Trade War Because It Started Years Ago
President Donald Trump’s announcement that he would place tariffs on steel and aluminum imports has economists cringing. Conservative Republicans are dusting off the principles they learned in Econ 101, liberal Nobel laureate Paul Krugman is warning that Trump will start an economically destructive trade war, and prominent world leaders are vowing to prove Krugman right. On Friday, European Commission President Jean-Claude Juncker threatened to retaliate against “unfair” U.S. tariffs with new levies on American motorcycles, bourbon and blue jeans.
It’s messy, unpredictable and unlikely to generate much international goodwill. But the truth is, Trump’s clumsy volley can’t start a trade war. Despite its blunt imprecision, a tariff on steel and aluminum just doesn’t affect very much commerce. More importantly, the world is already living through a trade war. It’s been raging since the 1990s.
The international experiment typically referred to as “globalization” isn’t a sterile set of enhancements to industrial efficiency. It’s a political doctrine. Its terms were controversial when they were ratified in the 1990s with the establishment of the World Trade Organization, but the project was charged with very specific political goals. Globalization was supposed to foster international stability and improve the standard of living for rich and poor countries alike, while encouraging ― in the words of then-President Bill Clinton ― “political reform” in nations hostile to democracy.
A quarter of a century later, it’s clear that this system has failed. Its fruits can be seen in the rise of far-right nationalist groups throughout Europe, the election of Donald Trump in America and the rise of an authoritarian superpower in China.
These are big problems that Trump’s little tariff won’t fix. But he also can’t break what is already broken.
As with just about any Trump policy proposal, the steel and aluminum tariff is riddled with “ifs.” The president has a habit of promising major changes and then doing … nothing. He’s been talking tough on trade his entire presidency, while watching the trade deficit drift higher as manufacturing jobs continue to disappear. On Twitter, he seems to have already shifted his proposal from a tariff on steel and aluminum to an import duty covering everything being shipped into the country. Nobody really knows where this thing is headed.
But the response from the European Union’s Juncker is instructive. He called Trump’s announcement “a blatant intervention to protect U.S. domestic industry,” which was not “based on any national security justification.”
It’s true that the U.S. hasn’t cited national security to justify steel tariffs in the globalization era. But Franklin Delano Roosevelt and Harry Truman certainly regarded the domestic steel industry as a national security asset, and both presidents implemented some pretty radical policies to preserve it (Truman even briefly nationalized the steel industry to break a strike during the Korean War). Trump’s decision is diplomatically reckless, but it is not, as Krugman charged, “transparently bogus.”
FDR and Truman recognized that trade policy isn’t really about prices and production. Tariff reductions, international currency summits and bank bailouts are, at their root, methods of distributing political power and accountability. Advocates of the 1990s globalization experiment, meanwhile, have a tendency to describe the status quo as “fair” or “free,” while attacking deviations from it as offenses against the sanctity of prices. But globalization isn’t neutral. It rewards some interest groups and disadvantages others.
Under WTO treaties and a series of pacts modeled on the North American Free Trade Agreement, prescription drugmakers in the U.S. and Europe are guaranteed long-term global monopolies on life-saving medication. This encourages predatory pricing, restricts access to medical care and burdens public budgets ― especially in poor countries.