Trump's Epic Squandering Of U.S. Trade Leverage

This is a bit of a stumble.
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President Trump’s slapdash unveiling last week of new tariffs on steel and aluminum imports sent stock markets reeling and Republican free-traders scrambling to convince the president to reverse his decision. Now America’s closest allies, Canada and the European Union, are mounting high-profile responses to the decision, illustrating how politically toxic it can be for foreign leaders to appear weak in the face of Trumpian threats.

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For its part, the EU has announced tariffs against Kentucky bourbon and Harley Davidson motorcycles in an effort to hit American business in Trump Country, while Canadian and Mexican leaders have vehemently denied that these tariffs, or their removal, would be an acceptable tactic in ongoing NAFTA negotiations.

And Tuesday, Bloomberg reported that the instituting of these new levies, which may formally go into effect as early as Wednesday, could lead to chief economic advisor Gary Cohn to leave the administration in protest, an idea the president seemed to welcome on Twitter.

In sum, the president set off a policy bomb six days ago that was haphazardly unveiled to the public, and without any real consideration of the effects on U.S. allies or even on the American companies and workers it was intended to help. (Even the Aluminum Association admits that more than 97% of jobs related to aluminum are downstream of the aluminum smelting work this tariff would protect).

There are some interesting lessons a more corrigible personality than the president could learn from the blowback to this announcement. The first is that while Trump may be beloved by his supporters, and has been able to change the political preferences of rank and file republicans, he is equally despised by his opponents, and able to change their views on topics that might otherwise fly under the radar. In other words, if the goal is to get Mexican, Canadian, and European politicians to agree to concessions that will boost American exports, than it has to be done so in a way that doesn’t make them look like they are publicly submitting to a hated U.S. president.

The second is that while the president’s powers to unilaterally institute tariffs are broad, winning a trade war is complicated stuff, contra the president. Instituting tariffs one industry at a time isn’t going to put a serious dent into the nation's overall trade deficit or the number of jobs lost due to the imbalance—even the rosiest predictions have these tariffs protecting a few tens of thousands of steel and aluminum jobs, while threatening jobs at businesses those commodities.

In addition, there’s good reasons why the bipartisan consensus towards the status quo on trade, which the Trump campaign attacked to such good effect, existed in the first place. To really do something about the U.S. large trade deficit with the rest of the world would require massive and sustained diplomatic engagement with other economies around the world that are relatively open (like Trump’s favorite bogeyman, Mexico, as well as Canada, Australia, and the United Kingdom), to create a united front in calling for trade surplus nations, like China, Germany, and Japan to change domestic laws and policies that give their exporters unfair advantages.

But mustering and maintaining that diplomatic effort, when so many other problems, like a nuclear North Korea, global climate change, or whether the EU can survive its many existential threats, loom, could be impossible, even if we assumed with a fully-staffed and competent Trump Administration.

The lesson for the rest of us to draw from this episode is that the president has no idea the negative political capital he brings to every issue he touches. Sure, he could shoot someone on 5th Avenue and wouldn’t lose a single supporter, but the obverse holds true as well: He could save a baby from a burning building on Lexington, and well more than half the world would call it fake news. If he wants U.S. trade partners to budge an inch on any hot-button issue, he will have to get his fingerprints as far from it as possible. There’s also the possibility that he knows and just doesn’t care, since for the president, any victory with someone else’s fingerprints on it is a loss for him.

Christopher Matthews is a writer who splits his time between New York City and Accra, Ghana, with an interest in the intersection of markets, the economy, and public policy. He previously held staff positions at Axios, Fortune Magazine, and Time Magazine, and has been published in Forbes and Debtwire.

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