Aside from China, the U. S. president is aiming his fire in the wrong direction.
NEW YORK – There are two kinds of trade wars: dangerous ones and dumb ones. The former is the kind that risks hurting the economy but has the chance of winning valuable concessions from trading partners and ultimately increasing the gains from trade. The second is the kind that hurts the country, even if it succeeds.
So far, unfortunately, much of U. S. President Donald Trump’s trade war has been of the latter variety. He has done two very unwise things — imposed tariffs on intermediate goods and directed the trade war at U. S. allies.
Intermediate goods are materials and parts that manufacturers buy in order to produce things — for example, steel and aluminum are used to make cars, appliances, machinery, buildings and lots of other things. Tariffs on steel and aluminum give a boost to domestic producers of those metals, but at the same time they hurt other domestic manufacturers by raising the prices they have to pay. Unsurprisingly, Trump’s tariffs have made life harder for U. S. manufacturers, increasing prices for metals and helping drive up manufacturing costs:
As a result, some U. S. manufacturers will be driven out of business by the tariffs, while others will be forced, rather ironically, to shift production overseas as motorcycle maker Harley-Davidson Inc. recently said it would.
Trump’s other big mistake has been to go after U. S. allies. Fortunately, Trump seems to trying to work out a trade deal with Europe and avert a clash, but tariffs and threats against Canada, Japan, Mexico and others remain.
Rich countries like Canada and Japan don’t take U. S. jobs or force down U. S. wages via trade, because their labor costs are also high. Trade with rich countries strengthens the U. S. economy, partly because it increases the variety of products available to consumers, and partly because companies from those countries employ workers in the United States. They also are important markets for American-made products. In addition, if the economies of major American allies take a hit, it weakens Washington’s global position.
So if Trump is smart, he’ll shift gears, scrap all tariffs on intermediate goods, drop all tariffs against allied nations and focus his effort on the real issue: China.
