Trade Wars And Trump’s Risky “Destructionism”

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Posted: Jun 20, 2018 11:31 AM
Trade Wars And Trump’s Risky “Destructionism”

Back in January, I compared Reagan’s pro-trade views with Trump’s cramped protectionism.

Well, here’s another video of the Gipper talking about trade. I especially like how he used “destructionism” to describe protectionism.

And let’s consider exactly the kind of destruction that may occur.

ScotiaBank in Canada has crunched numbers on the possible consequences to North America in a world of Trump-style tariffs. The “good news” is that the United States suffers the least amount of damage. View the chart here.

The bad news (actually the worse news) is that the American people will suffer a significant and sustained loss of economic growth. And that has very negative implications for long-run prosperity.

But this isn’t just about macroeconomic aggregates.

Here’s an example from the Wall Street Journal of how protectionism backfires.

Lyon Group Holding…is struggling to survive as Donald Trump’s steel tariff gives his Chinese competitors an unfair advantage. Meet the law of unintended tariff consequences with arbitrary harm to the innocent.…Steel has long accounted for 45% of the cost of making lockers at Lyon and Republic, the single biggest expense. Mr. Trump’s 25% tariff has driven up the price of foreign steel and given domestic steel the chance to raise prices. American hot-rolled steel coil recently sold for $900 per short ton…up 38%, or $248 per ton, since the beginning of January. …Raising locker prices isn’t an option. Even before the tariffs, Lyon and Republic’s clients were paying a 10% premium for the convenience of buying American instead of Chinese, and they can’t afford to go any higher, Mr. Altstadt says. …foreign manufacturers are benefiting from Mr. Trump’s steel protectionism.

And here are some of the real-world costs.

If the tariffs remain in place, Mr. Altstadt says he’ll have no choice but to buy foreign-made locker components. Reluctantly, he’s visited factories in China to consider his options. But if Lyon and Republic outsource locker parts from abroad, Mr. Altstadt says he’ll have to lay off at least one-fourth of his American workforce and perhaps shutter and sell one of his metalworking factories. …he is haunted by “the devastating effect on real people.” Two-thirds of his workforce is unskilled.

I feel sorry for Mr. Altstadt, but I won’t lose sleep about his plight. I assume he’s at least in the top-5 percent for income and wealth.

The real victims of Trump’s protectionism are the ordinary workers at the company. These people may not have high skills, but they are playing by the rules and doing the right thing instead of living off the government. Yet now many of them may lose their jobs because the President doesn’t like America’s system of free enterprise.

Disgusting. Protectionism isn’t just bad economics. It’s immoral as well.

P.S. Reagan’s rhetoric on trade was perfect, but not his policy. As I explained last year, his generally strong economic record was marred by some protectionist initiatives.