Written by: Emily Wurst
Things are looking good right now for our Commander in Chief. With the employment rate at a record low of 4.1%, a generally bullish stock market, no major international conflicts, and nuclear tension simmering down, it seems that Donald Trump couldn’t do much better. His Republican approval rating of 86% appears to be a party mandate and the Donald is charging ahead. That, of course, is the problem. On March 2nd, Trump committed to imposing a 25% tariff on all steel imports and a 10% tariff on all aluminum imports, to the chagrin of many in his administration, Wall Street, international trading partners, and likely much of the American populace. Although protectionist economic theory asserts that the move will preserve jobs by directing business to American steel and aluminum companies and reduce the trade deficit, the economic reality of the situation is far more complex.
A maxim of any introductory economics course is that trade is beneficial for both parties. Specialization allows for increased production and efficiency than would be possible in a closed economy. Another rule of thumb is that if tariffs are imposed, the affected party will respond by imposing its own tariffs, resulting in a tit-for-tat style trade war–wasteful and the worst outcome for everyone. Understanding this, free trade advocates and lobbyists alike flocked to the White House following the announcement to coax exemptions and exclusions out of the bill that could be worth billions of dollars. While manufacturing and construction companies will be directly affected, the tariffs’ consequences reach far beyond these particular industries. For example, the American Soybean Association orchestrated a fierce lobbying effort in fear that retaliations to the tariffs will impact agriculture and specifically soybeans, as they are among America’s biggest exports.
Even worse, upon outcry from US allies and trading partners in the European Union, Trump threatened that he would impose more tariffs on European automakers. This is all in pursuit of “fairness” and the ceaseless goal of revenge against China, given the United States’ significant trade deficit. The trade deficit, or the difference between the amount of money going into the country versus the money leaving it, is being fueled by an imbalance between saving and investment rates. This, by definition, must be the result of excess spending on foreign goods and services which we fund by borrowing from foreign lenders or foreign investing, not a result of countries looking to take advantage of the United States. Regardless, Trump is convinced that the American people are being cheated, tweeting “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.” Besides the fact that his statement is fundamentally incorrect, this lack of knowledge and judgement may be foreshadowing what is to come. The real impacts of a trade war are unemployment, greater financial burdens for consumers, inefficiency, and strained international relationships, none of which the United States is immune from. Although Trump has offered a select amount of exemptions to the tariffs, they are to countries with which the United States has a trade surplus. This elementary trade decision voluntarily strains relations with most major U.S. trading partners in the European Union and Asia, implying that most U.S. imports are at risk of price spikes. Ultimately consumers take the brunt of this foolish policy and U.S.-E.U. relations are strained further. In the classic Trump blend of overconfidence and blatant incompetence, his brazen policy decision will end up exacerbating the economic uncertainty he’s promised to alleviate.