A Lovely Little Trade War

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Donald Trump

doubled down Friday on his plan for steel and aluminum tariffs, telling his advisers he won’t exempt any countries from the new blunderbuss border taxes, and issuing on

Twitter

one of the greatest displays of economic nonsense in presidential history.

“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. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!,” Mr. Trump tweeted Friday morning.

Let’s parse that one, to the extent it is humanly possible. Mr. Trump believes that trade is a zero-sum game, with winning defined as having a national trade surplus. But trade consists of millions of acts of buying and selling by individuals and companies that are presumably for mutual benefit. Otherwise why would they do it? No one forces anyone to buy or sell across borders. The entire point of trading goods or services is that someone wants to buy the car or pay for the engineering design.

Then there’s Mr. Trump’s remedy, which is “don’t trade anymore-we win big.” So if the U.S. has a $100 billion deficit with Country X, simply stop trading with that country. Voila, problem solved.

But that $100 billion deficit represents an enormous amount of commercial activity, which creates jobs for millions of Americans. Someone in the U.S. has to sell that car made in Japan, or create an ad campaign to sell it. Mr. Trump’s trade-deficit remedy is to stop that trade cold and assume that somehow the production will magically arise in the U.S. Even if that were true, and it isn’t, he’s advocating what economists call autarky, or economic self-sufficiency that would result in a depression as commerce and investment crashed.

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Some of our more sanguine friends see the tariffs and tweets as Mr. Trump’s familiar negotiating bluster, but we wouldn’t be too sure. Protectionism may be his only real policy conviction, and his tweet confirms he doesn’t know what he’s talking about. This is what the equity markets are saying as they discount trade-dependent companies.

Appeared in the March 3, 2018, print edition.



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