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Abu Dhabi, UAEWednesday 26 September 2018

Trump’s new trade war is absurd national and economic policy – but it’s great politicking and exactly what he promised

Even though it makes absolutely no sense, this bellicose, irrational protectionism sounds great to many Americans right now, writes Hussein Ibish

US President Donald Trump announces that the United States will impose tariffs of 25 per cent on steel imports and 10 per cent on imported aluminum during a meeting at the White House / Reuters
US President Donald Trump announces that the United States will impose tariffs of 25 per cent on steel imports and 10 per cent on imported aluminum during a meeting at the White House / Reuters

Donald Trump has said many outlandish things throughout his career and a good many since he was elected president of the United States. But his tweet on Friday claiming that “trade wars are good and easy to win” as he announced hefty new tariffs on imports of steel and aluminium is arguably one of his most preposterous and dangerous declarations yet.

In fact, history strongly suggests that trade wars are incredibly dangerous and, in almost all cases, no one wins. In the contemporary, globalised economic environment, the idea is even more ridiculous than it was when it was last embraced by populist American demagogues in the 1920s, leading directly to the calamity of the global Great Depression (which arguably then led, indirectly, to the even greater cataclysm of the Second World War).

The only economist who seems to agree with Mr Trump that such hyper-aggressive protectionism is a good idea is Peter Navarro, who is reportedly being promoted in the administration. Everyone else, notably almost all Mr Trump’s other trade aides, including chief economic adviser Gary Cohn (who reportedly threatened to resign over the issue), understands how dangerous that is.

Even on its own, most narrowly drawn, terms the idea is just bizarre. A total of 6.5 million Americans work in industries that use steel and all of them will suffer, as will most consumers. Only 140,000 Americans work for steel manufacturers. Moreover, the biggest exporter of steel to the United States, Canada, is an even bigger consumer of US steel, purchasing 50 per cent of what the US sells. It doesn't take mathematician to work out why this is badly thought-out.

That leaves aside the complexities of a system in which global supply chains are virtually seamless, markets are almost borderless and few items are simply made in a given country in a simple, straightforward way. Then there’s the obvious potential for a downward spiral with trading partners beginning to impose retaliatory measures.

It is quite obvious why the risks hugely outweigh the benefits, which may even not exist at all and that a lose-lose scenario is by far the most likely outcome of any trade war, as has historically been the case.

However, it’s also important to recognise how appealing this will be to many in Mr Trump's white working class base. Much of the country has been, and remains, in economic decline. Mr Trump and other demagogues blame this on a combination of foreign threats, in the form of unfair competition and predatory immigration, and the weak leadership of their non-nativist rivals.

When Mr Trump rails against immigration and declares that the era of American “surrender” on trade is over, that resonates powerfully in much of the country because blaming foreigners is easier than facing up to more complex, painful and often homegrown realities. And the appeal is bipartisan.

Along with immigration, trade was a defining issue in Mr Trump’s campaign. He shared much of this agenda with senator Bernie Sanders, who ran another major insurgency among the Democrats and nearly defeated Hillary Clinton in the primaries. Mrs Clinton, too, had to shift, albeit disingenuously and unconvincingly, on trade.

Democrats have long assumed that demographic changes that are about to transform the US into a nation of minorities will favour them. Their support rests on a coalition of thematic interests like unions and a variety of identity groups, including many ethnic minorities, among them Latinos, black people and Jews.

Republicans, on the other hand, represent a coalition of interests between other interests such as big businesses, with just one gigantic identity group: white Christian Americans.

Democrats hope the growth and proliferation of tribal minorities will favour them. But since the Republican tribe is, and will remain, by far the largest ethnic bloc, that’s by no means necessarily correct.

The white Christian Republican tribe is not only the biggest. Most other groups are inefficiently clustered in big cities and large states, whereas the Republican tribe is geographically dispersed to take maximum advantage of the American federal system.

In much of the US, this tribe is also quite united and staunchly Republican, according to all polls. Its increasingly neo-Jacksonian attitudes, particularly in non-urban areas, make consistent and powerful, emotive messaging fairly straightforward for a skilled demagogue such as the current president.

Democrats may well have a larger potential base and voting bloc. But the system doesn’t favour them, as demonstrated in the last presidential election, in which they won the popular vote but lost in the federal electoral college. Their current divisions and bitter infighting demonstrates how difficult it is to message to all these different and incongruous Democratic constituencies simultaneously, especially in contrast to the relatively unified white Republicans.

Worse, by utilising populist, blue-collar appeals such as anti-globalisation protectionism and playing on racial anxieties, Mr Trump was able to convince large numbers of mostly white Christian former Democrats to vote for him. Indeed, that’s how he won.

Mr Trump’s new trade war is absurd national and economic policy. But it’s great politicking and, after all, exactly what he promised the public. Even though it makes absolutely no sense, this bellicose, irrational protectionism sounds great to many Americans right now, while its negative impact will mainly accumulate over time. That’s exactly why Mr Trump is doing this. It could help him win again.

Hussein Ibish is a senior resident scholar at the Arab Gulf States Institute in Washington, DC

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