Trade wars typically leave no victors
Trade wars generate no medals, monuments or military parades. But they do tend to leave a lot of economic wreckage, often hurt the very people they’re meant to help and can fracture diplomatic relations among allies.
After announcing plans last week to slap taxes on imported aluminum and steel, President Donald Trump called trade wars “good” and breezily forecast an “easy” victory for the United States.
Economists see it rather differently. Starting a fight with trading partners has mostly proved to be self- defeating, they note.
“Usually, all sides lose in a trade war,” says Douglas Irwin, a Dartmouth College economist and author of the just-published “Clashing Over Commerce: A History of U.S. Trade Policy.” “Trade shrinks as countries pile on barriers in an effort to remedy some grievance, with consumers paying the price.”
Wall Street clearly agrees. Stocks sank Thursday and Friday after Trump announced plans to slap tariffs of 25 percent on steel and 10 percent on aluminum imports, effectively threatening to wage commercial war on U.S. trading partners from Brasilia to Berlin to Beijing.
Shares of some of America’s biggest exporters – Boeing, Deere, Caterpillar – fell hardest on fears that other countries would retaliate against U.S. products.
The term “trade war” is usually tossed around when countries spar over commerce, often without a clear sense of what it is. Eswar Prasad, professor of trade policy at Cornell University, defines it as a series of “escalating tit-for-tat trade barriers imposed on each other by two or more countries.”
Edward Alden, senior fellow at the Council on Foreign Relations, said the world hasn’t endured a full-blown trade war since the 1930s. But globally, war drums are beating again.
Europeans have threatened to retaliate against Trump’s metals tariffs by targeting American blue jeans, bourbon and Harley-Davidson motorcycles. It may not be a coincidence that Harleys are produced in House Speaker Paul Ryan’s Wisconsin and bourbon in Senate Majority Leader Mitch McConnell’s Kentucky. Trump has met Europe’s threat of retaliation with a piled-on threat of his own: to slap tariffs on European autos.
Prime Minister Justin Trudeau of Canada, which stands to suffer most from Trump’s proposed steel and aluminum tariffs, warned that he was prepared to “defend Canadian industry” from the tariffs.