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Trump's tariff move shows he flunked economics

President Donald Trump fired the first shot in a delusional and destructive trade war: tariffs of 25% on steel and 10...

Posted: Mar 2, 2018 3:00 PM
Updated: Mar 2, 2018 3:00 PM

President Donald Trump fired the first shot in a delusional and destructive trade war: tariffs of 25% on steel and 10% on aluminum. Shares of US Steel jumped 5.75%, about $460 million in market capitalization, but the overall US stock market capitalization fell by more than 1%, around $340 billion.

A few steel companies might benefit a little -- in the short term -- but the United States as a whole, and the world, could suffer enormously from Trump's reckless ignorance.

Whatever US steel producers might gain from a trade war would be offset by the losses to steel users and consumers, plus the social costs of protecting uncompetitive jobs. But the blow to the stock market reflects the possibility of something far more dire: a downward spiral to a global trade war in which all countries, including the US, will be deep losers. We have been there before: The trade wars of the early 1930s helped to trigger, then deepen and prolong, the Great Depression.

But don't expect an impulsive and ignorant man like Trump to heed the lessons of economic history, logic of retaliation, and the basics of trade.

His actions are based on three primitive fallacies.

First, Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them. The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior.

Come to think of it, that is precisely how Trump has spent his whole business career: over-borrowing, going bankrupt, and blaming his creditors.

Second, Trump thinks that trade barriers will protect the US. Nonsense. These measures might temporarily protect US Steel, but not US society. American consumers will lose. US businesses that buy steel will also lose because now they must pay higher prices. American export competitiveness will suffer as production costs rise.

Third, Trump believes that US trade barriers will crush China and sustain American global economic and military dominance. How pathetic. China and Europe will surely retaliate. American companies will face reduced access to China's fast-growing market. China will shift its own exports to other markets, especially towards fast-growing Asia, as well as towards Africa, Europe, and Latin America.

American exporters will lose their relative competitiveness in those markets as well.

Nor will jobs be saved even in the US steel industry, except perhaps in the very shortest term. The US has been protecting its primary metals industry, off and on, for decades while employment has declined from around 1.2 million workers at the end of the 1970s to about 375,000 workers now.

It is automation more than international trade that costs jobs in the sector in the long term, and that will mean no boost of long-term employment in steel, much less in the economy at large (with a sure loss of jobs outside of the protected metals industries).

Within one day, other countries announced their displeasure and in some cases, their intention to retaliate. The European Union Trade Commissioner Cecilia Malmstrom stated that the EU would have no option but to respond. "Imposing sweeping measures like this is generally not the way forward. We risk seeing a dangerous domino effect from this."

Others pointed to the US violation of World Trade Organization rules. China reacted coolly, objecting to the US action but without any immediate declarations of retaliation. A former Chinese vice minister of trade stated, "China does not want to see a trade war with the United States. But if Trump insists, China is not afraid of it."

Trump is making these primitive errors because he hasn't a clue as to how the world economy works and how to deliver on his promises to raise US living standards. Raising US living standards requires long-term investments in education, research and development, environmental sustainability, and infrastructure.

But for Trump, it's always gimmicks and lies: tax cuts and increased budget spending that are paid for by rising public debt. Federal budget cuts on science, advanced technology, and environmental safety that leave the US less competitive and highly vulnerable to hurricanes, floods, and forest fires. And reckless trade wars that will harm US competitiveness and trigger global retaliation.

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 726600

Reported Deaths: 13379
CountyCasesDeaths
Marion992781737
Lake53359964
Allen40387675
St. Joseph35449550
Hamilton35440408
Elkhart28376439
Tippecanoe22336217
Vanderburgh22271396
Porter18637306
Johnson17876377
Hendricks17154314
Clark12919191
Madison12574339
Vigo12426245
Monroe11845169
LaPorte11773210
Delaware10615185
Howard9859215
Kosciusko9366117
Hancock8239140
Bartholomew8042155
Warrick7766155
Floyd7645177
Grant7019174
Wayne7018199
Boone6669101
Morgan6547139
Dubois6148117
Marshall6000111
Dearborn578577
Cass5780105
Henry5681102
Noble558283
Jackson500472
Shelby489496
Lawrence4492120
Gibson434391
Harrison434271
Clinton426853
DeKalb425284
Montgomery423388
Whitley394439
Huntington387480
Steuben382957
Miami380266
Knox371890
Jasper362747
Putnam358560
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Jefferson328881
White312854
Daviess295899
Wells290481
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Fayette278662
Greene276685
Posey270933
LaGrange264770
Scott264753
Clay259245
Randolph239781
Washington239532
Spencer231331
Jennings229248
Starke214452
Fountain211946
Sullivan211042
Owen197056
Fulton194640
Jay191830
Carroll188120
Perry182637
Orange182454
Rush172925
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Pike133034
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Newton107034
Brown101541
Crawford99114
Benton98414
Martin87815
Warren81415
Switzerland7848
Union70710
Ohio56211
Unassigned0413

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1080121

Reported Deaths: 19344
CountyCasesDeaths
Franklin1254981392
Cuyahoga1115202107
Hamilton798171200
Montgomery512711012
Summit46997933
Lucas41982782
Butler38273580
Stark32190907
Lorain24910480
Warren24249297
Mahoning21474586
Lake20586368
Clermont19727238
Delaware18496131
Licking16396210
Fairfield16144199
Trumbull15996466
Medina15233262
Greene15027244
Clark13960297
Wood13056188
Portage12806201
Allen11609231
Richland11308198
Miami10659215
Muskingum8795132
Wayne8777210
Columbiana8756229
Pickaway8547121
Marion8511135
Tuscarawas8467243
Erie7859154
Hancock6900126
Ross6835152
Ashtabula6777169
Geauga6665148
Scioto6398101
Belmont5856167
Union570047
Lawrence5542102
Jefferson5511151
Huron5422119
Darke5344122
Sandusky5330120
Seneca5268121
Athens518258
Washington5148109
Auglaize488484
Mercer480185
Shelby468593
Knox4479110
Madison435461
Putnam4268100
Ashland421289
Fulton420969
Defiance418997
Crawford3965106
Brown392957
Logan381176
Preble379098
Clinton370561
Ottawa366279
Highland353861
Williams338075
Champaign330458
Guernsey315453
Jackson312051
Perry294550
Morrow283839
Fayette281449
Hardin270364
Henry268166
Coshocton264258
Holmes2590101
Van Wert242863
Pike237433
Adams237052
Gallia235048
Wyandot230654
Hocking215162
Carroll191247
Paulding172440
Meigs144639
Noble133337
Monroe131942
Morgan108323
Harrison107537
Vinton82415
Unassigned02
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