There will be no winners from Trump’s brainless trade war

How these latest levies are expected to compel the Chinese to reform their intellectual property regime is unclear, even to the President’s own spokespeople

Ben Chu
Friday 23 March 2018 16:14
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Donald Trump unveils $60bn in tariffs on China for intellectual property theft

Donald Trump’s tariff war is a punch in search of a provocation. Earlier this month he announced large levies on steel and aluminium imports, citing vague threats to US national security.

This week he’s followed up by slapping tariffs on imports of Chinese robots and high-speed trains, citing US intellectual property theft by the Asian superpower.

Precisely how cheaper global steel is undermining the future of the Republic is a mystery.

And how these latest levies are expected to compel the Chinese to reform their intellectual property regime is unclear, even to one of the President’s own spokesmen, who burbled to reporters in Washington: “I don’t think it is as simple as saying ‘there is this very simple end-game here and it will all be over.’”

Yet we needn’t spend too long interrogating the logic. Because the real motivation for Trump’s tariffs is the simple desire to impose them. It’s plain by now that Trump regards tariffs as an end in themselves, because, they symbolise “protection” to his domestic electoral base.

Liam Fox calls Donald Trump's tariffs on steel and aluminium 'absurd'

The technical justifications follow the primal instinct to show that he’s getting tough on cheating foreigners.

Tariffs will make us a “much stronger, richer nation” the President proclaimed as he unveiled his latest round of levies, echoing the extraordinary claim back at his inauguration where he said that “protection will lead to great prosperity and strength”.

To believe that tariffs really can deliver such transformative economic benefits one would have to be living in the mental universe of the early 19th century.

This was the logic of the tariff wall imposed in that era by the US on the grounds that the “infant industries” of the nascent American republic needed to be shielded from foreign competition in order to grow to maturity.

This was, incidentally, a time when America was engaged in its own contemporary intellectual property piracy, smuggling plans for factories and modern textile machinery out of Europe.

Many historians and economists do actually credit tariffs in helping American industry develop in that era. Be that as it may, this is no longer the world in which we live.

The reality today is a world in which multinational companies have manufacturing supply chains spread across the planet, including in China; where these same companies sell their finished products into markets all over the world.

There will be no protection for these companies from the President’s trade war. In fact the opposite: these firms rely on a multilateral free trade framework where goods, commodities and investment can flow relatively freely across borders. It is that multilateral framework that Trump’s belligerence threatens to fracture. This is why stocks in global companies such as Caterpillar and Boeing have been so heavily marked down by anxious investors this week.

Yes, Trump’s steel import tariffs might give a boost to domestic US steel manufacturers. But only at the cost of making steel more expensive for those domestic US manufacturing companies that buy a lot of metal.

And keeping out Chinese robots really won’t really do much to help domestic US robot manufacturers – especially if the consequence of the tariffs is a tit-for-tat move by the Chinese to block imports of US advanced technology.

If the White House’s objective really is to crack down on Chinese commercial IP theft and to prise open the still massively protected Chinese domestic services market – not unreasonable goals – the US ought to be pursuing this through collaboration with natural allies such as the EU, and via the World Trade Organisation. Instead, the Trump administration has been picking separate fights with Europe over trade and heaping scorn on the WTO.

Another reality is that none of these levies is likely to help reduce America’s $375bn goods trade deficit with China, that so obsesses Trump and his team of economic advisors, and which the President was again invoking this week as a motivation for his tariffs.

Trade deficits are driven primarily by domestic spending and income imbalances and government currency interventions, not the supposedly rip-off trade deals that Trump tends to blame.

Trump's new tax cuts are actually liable to push up the country's current account deficit by stoking domestic spending.

And the economic harm from these imbalances is less to particular domestic companies and industries than to international financial stability, as a tidal wave of capital flows from surplus countries such as China to deficit ones such as the US and the UK.

Trump, as we know, preens himself as a “winner”. But from an economic perspective the old truth still applies: in a trade war everyone loses.

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