Trump's tariffs will not end well

The United States is starting a global war, a trade war.

By David Bernell and Ambassador Thomas Graham (Retired)

The United States is starting a global war, a trade war. On March 4, Donald Trump imposed tariffs of 25 percent on goods from Canada and Mexico, after pausing them for a month because of the initial reactions from these countries. Trump also placed an additional 10 percent tariff on goods from China, on top of the 10 percent that was implemented a month prior. Canada, Mexico and China are the United States’ three largest trading partners, and they imposed retaliatory tariffs against goods produced in the United States.

Trump quickly stepped back from his policy, just as he did in February, but not quite as much. The White House said on March 5 that the United States would not impose tariffs on automobiles and auto parts, and it followed up a day later by creating an exemption for goods covered by the U.S.-Mexico-Canada trade agreement. These products would all get a reprieve for an additional month. However, the administration also clarified that tariffs will still go into force for many goods, saying that only about 50 percent of products from Mexico, and 38 percent of products from Canada will be exempt from the tariffs. In addition, Canadian oil and other energy imports, as well as potash, which is used in fertilizer, will face a tariff of 10 percent.

Trump exempted some agricultural goods, and news stories circulated about about how lobbying by auto industry executives persuaded Trump to pause tariffs on them. These pleas for help might make Trump feel powerful, and he will no doubt enjoying handing out favors, but this represents a terrible situation: the fortunes of firms and industries and communities would become dependent upon winning the favor of the president. This makes access, flattery, and maybe even corruption the driver of policy.

The president of the United States is so unpredictable that no one knows if he will follow through with his tariffs, or revoke them, or revoke only some of them, and for how long. To some extent this doesn’t matter. The damage is already being done, and these measures will have impacts that ripple through the economies of all the countries involved, and around the world. The problem is not just the specifics of the tariff policies and their expected economic impacts, but in the entire approach that Trump is bringing to American trade and foreign policy, and the post-World War II economic order he seems determined to kill off.

The Trump View of Trade

In his March 4 speech before Congress, Trump said that the current system of trade has amounted to the United States paying subsidies to Canada and Mexico, and that the United States has been “ripped off for decades” by countries all over the world. “Other countries have used tariffs against us for decades and now it’s our turn to start using them,” he said, while promising more tariffs on more countries and more goods going forward. His belief is that tariffs will bring in “trillions of dollars and create jobs like we have never seen before.”

Tariffs are not out of the ordinary. The United States and other countries place tariffs and trade restrictions on a variety of goods. However, these have been targeted to specific products or industries. The United States has put tariffs on a Chinese products over the past several years, including in the first Trump administration, including on solar panels, steel, washing machines and televisions. However, these tariffs were in response to what the United States said were unfair trading practices. The World Trade Organization specifies what counts as an unfair trade practice (such as “dumping”) and what counts as permissible restrictions of trade (such as protecting of health and safety). When countries impose tariffs, they must be justified in terms of these WTO rules, which the United States and its trading partners have agreed on since right after World War II.

The tariffs that Trump envisioned in his speech, and those that he appears to want the most, are different, and they represent a decisive break in U.S. trade policy. They involve imposing tariffs across the board on virtually all products. The goal is not to provide protection against unsafe products or unfair trade practices but to reduce imports overall, seeing them as an economic drag on the United States.

Trump’s tariffs hearken to an earlier day, one defined by European imperialism and what is called “mercantilism.” This was a view of economic growth based on the idea that countries could build their wealth and national power through restrictive trade practices. The way to do this was to protect domestic production and maximize exports while limiting imports through tariffs. Adam Smith came along in 1776 and challenged this idea in “The Wealth of Nations,” arguing that free trade would make countries wealthier than mercantilism. After the British took Smith’s advice and opened to global trade, they became even richer, making London the center of global finance in the late 19^th and early 20^th centuries (the British were also at a great advantage because they were the first country to industrialize). Other countries later followed suit. The logic of opening trade has remained consistent since this time, and it has been increasingly embraced by both developed and developing countries, though its application has not been uniform.

Open Trade is Better Than Protectionism

The best example in making the case for the benefits of open trade and the dangers of protectionism comes from the 1930s. The Smoot-Hawley Act—passed after the American stock market crash of 1929—imposed high tariffs on thousands of goods from its major trading partners to protect American companies. It instead invited retaliatory tariffs and stalled global trade. This not only harmed American companies, which lost many of their overseas markets, but it also fueled a trade war that turned what was already a severe economic slowdown into the Great Depression. This fueled the rise of fascism, the ascent of the Nazi party in Germany, and a frenzy of economic nationalism that led first to global economic competition and eventually to World War II.

The lesson was that tariffs deepen economic pain and crises, which lead to the rise of radical ideologies and dictatorships whose leaders see the salvation of their countries in economic and political dominance that leads to global war.

One of the great triumphs after World War II was the restoration and formalization of a more open, global trading system, like the one that existed when the British were the richest global power. The General Agreement on Tariffs and Trade allowed countries a peaceful, easy, and fair way to acquire the resources they wanted–by engaging in global trade, rather than being tempted to conquer lands with the resources and markets they coveted.

The economic order under GATT, and its successor, the WTO has been remarkably successful in keeping the United States the most affluent country on Earth for decades. Moreover, it has been an important part of limiting violent conflict over economic competition, especially among the world’s biggest powers, who could (and in the past did) drag the rest of the world into their wars. Trading rules and institutions, along with U.S. power and leadership, helped to break, or at least greatly diminish, the links between nationalism, violence, and resource sufficiency. In the post-WWII era, the United States, Japan, and European countries have not needed or wanted to conquer or colonize lands to acquire critical products such as oil. They just bought the oil.

Getting this trading system in place and keeping it vibrant and secure has long been a key goal of U.S. foreign policy. And now Trump seems determined to end this system, which has been viewed as essential to supporting peace and prosperity. In its place he is seeking to bring back a trading system that is based on a misguided approach that he believes will achieve greater American prosperity. It won’t, and, worse, in pursuing this goal the United States will harm others–and not just anyone, but America’s closest allies, friends, and trading partners. As we have argued before, “friends without benefits” will soon be no friends at all.

Trump has been inconsistent in following through with his promises/threats regarding tariffs. He has caved on the issue a few times, and, with any luck, he will again. Otherwise, going down the path of protectionism will not end before inflicting a lot of pain and fueling a lot of conflict. Hopefully it will end long before countries are at each other’s throats.

David Bernell is an associate professor in the School of Public Policy at Oregon State University. He is the author of “Constructing US Foreign Policy: The Curious Case of Cuba” and “The Energy Security Dilemma: US Policy and Practice.” He also served in the Clinton administration with the U.S. Office of Management and Budget and the U.S. Department of the Interior.

Ambassador Thomas Graham Jr. is former acting director of the U.S. Arms Control and Disarmament Agency under President Clinton and served as general counsel of ACDA during the presidencies of Jimmy Carter, Ronald Reagan and George H.W. Bush. He is the author of several books on nuclear arms control, U.S. foreign policy, and American politics.

You can find their work on Substack at Defending Democracy.

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