In many ways Donald Trump’s presidency of the United States has been going better than might have been expected from a Conservative perspective. He won after mounting a hostile takeover of the Republican Party. How could he expect to work with those who he had showered in personal abuse – and who had often responded with some pretty robust criticisms of their own?
All of Trump’s bigoted outbursts have provided a parody of a Conservative leader – making life simple for the agitprop Left. Yet before he gatecrashed the Republican Party he used to make donations to the Democrats. Although a capitalist, it is doubtful whether Trump ever was a true believer in free enterprise. Rather than a faith in open competition, his background suggested the ultimate corporatist. For the author of “The Art of the Deal”, crony capitalism was the way to get on – securing political favouritism.
On a daily basis, those of us fortunate enough to live in the free world, have cringed with embarrassment at the tweets of our leader. Yet there have been some impressive achievements – most particularly tax cuts which have been a source for economic optimism and offer an example to the rest of the world. It seems quite likely that once a new Italian Government is formed – with a similarly colourful leadership – that it will adopt the same approach.
Now the gloom has started to descend again though with Trump’s threat to free trade. He proposes import duties of 25 per cent on steel and ten per cent on aluminium. The President talks of “winning” a trade war. But with trade wars everybody loses. Senator Jeff Flake, a Republican, said he will introduce legislation to halt the tariffs, declaring:
“I urge my colleagues to pass it before this exercise in protectionism inflicts any more damage on the economy.”
For allies on the issue Trump will be looking for Democrats such as Senator Joe Manchin who said it was “past time to defend our interests, our security and our workers in the global economy”.
Trump is also able to glow with the endorsement of The Guardian leader writers for his protectionism. The Guardian declares:
“Not everybody gains from trade, and some gain a lot more than others. So if there is a trade war Mr Trump will be not the only one to blame. Those who trumpeted the benefits of globalisation said the benefits would be fairly shared. They have not been. They said there would be help for those who lost well-paying jobs. It never arrived.”
The Guardian is surely right to see that we won’t see trade restricted to the disastrous extent of the 1930s and also to make the obvious point that we don’t have complete free trade at present. It says: “This is not the way the world actually works. Trade is managed rather than free.” But neither of those points provide justification for more tariffs.
In 2009, Barack Obama imposed a 35 per cent tariff on Chinese tires. In his 2012 State of the Union address he boasted that “over a thousand Americans are working today” due to those cheap imports being stopped. Indeed an analysis from the Peterson Institute of International Economics did show 1,200 jobs saved. But:
“Our analysis also shows that American buyers of car and light truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job manufacturing saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home. The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are off set against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales.”
Free trade has provided the most extraordinary reduction in poverty in developing countries, while also further enriching the western world. Yet there is still easy populism to embracing economic nationalism. Against all reason, many still talk as if there is a fixed amount of wealth and a “zero sum game” to grab a bigger share. However, we shouldn’t be too pessimistic about public opinion – since Trump’s attack on free trade his ratings have gone down not up. A poll on the specific issue found that 31 per cent backed the tariffs with 50 per cent opposed. An example of unpopular “populism”?
1776 saw the publication of Adam Smith’s The Wealth of Nations, which set out so powerfully how free trade offers the path to prosperity. That same year saw the formation of the United States of America. Its very existence was a protest against the trade restriction of the 1773 Tea Act and the crony capitalism of the East India Company.
Of course it could still be that a trade war doesn’t materialise. That it is all bluster from Trump – all part of a negotiating tactic. But it is a dangerous time, with macho threats being issued and a narrative that it would be “weak” to back down. If it is pursued, great harm will done. For Trump’s sake – and for the rest of us – let us hope it can be averted.