President Donald Trump’s trade war against the world is being herald as a success by his administration and his supporters. But it’s hard to imagine what success looks like when consumers are getting taxed, farmers are losing their businesses, and the economy is shedding billions.
Nobody ever wins a trade war.
Want further proof?
According to a study by a team of economists at leading American universities, titled “The Return to Protectionism,” the president’s trade spats have cost the United States economy $7.8 billion in 2018. This accounts for 0.04 percent of gross domestic product (GDP).
This was the total figure, even after accounting for higher tariff revenue and gains to domestic firms from higher prices.
Last week, it was reported that the trade deficit surged to a 10-year high of $621 billion (SEE: U.S. trade deficit surges to 10-year high thanks to strong economy).
The study was published by the National Bureau of Economic Research (NBER),
Smoot and Hawley did not think they were going to reduce real output. Those ignorant of modern economics do not understand the mechanisms by which tariffs reduce economic activity. They might easily think that tariffs on steel and aluminum simply shift production from other countries to the US, so what’s the problem? Clearly there are present-day versions of Smoot and Hawley who think tariffs are a good idea.
Already, we are seeing the effects of the inevitable responses to tariffs. Not only were Trump’s assertions that “trade wars are easy to win” fallacious, but the country that instigates a trade war is always by far the biggest loser. The retaliating nations always have a tremendous advantage over those instigating protectionism. This can be easily seen with the tariffs on steel and aluminum that increase the costs of every product made in the US that uses those metals. Thus, American consumers and producers are already net losers from these ill-advised protectionist tariffs, even before any retaliation. These tariffs increase consumer prices and make products produced in the US less competitive, relative to those manufactured goods made outside the country using steel and aluminum priced at the world market, rather than the artificially propped-up, protected US and aluminum steel markets.
As Trump discovered when a retaliatory tariff was put on US motorcycles by the EU, mostly impacting Harley-Davidson (NYSE:HOG), which will not raise any costs on any EU producers or for anyone in the EU except for buyers of motorcycles, the cost to the retaliating nations is miniscule. HOG has announced it will have to shift production outside of the US as a result of the tariffs. Thus, on top of the harm to US consumers, producers and exporters of the steel and aluminum tariffs, before any retaliation, American workers at HOG lose jobs and shareholders of HOG suffer as well. Polaris Industries (NYSE:PII) the US maker of Indian and Victory brand motorcycles, is considering similar actions with regard to shifting production overseas and reducing employment in the US in response to Trump’s steel and aluminum tariffs and the retaliation by other countries.