Trump Courts a Global Trade War

He promises a new 10% border tax on anything made abroad

WSJ editorial. 

"Donald Trump exaggerates about many things, but on economic policy his record is that he means what he says, for better or worse. His leading message for a second term these days is that Americans should be prepared to pay more for all kinds of goods because he plans to impose a 10% tariff on all foreign goods sold in America.

“To bring tens of thousands more manufacturing jobs back to South Carolina, I will impose a border tariff on all foreign-made goods,” he said recently in Columbia. “So if they want to sell into our country and if they want to take our jobs by doing that, we’re going to have a tax that’s going to be a ‘privilege’ tax.”

Mr. Trump is also pitching a universal reciprocal tariff that would see the U.S. impose tariff rates on foreign goods equivalent to what the exporting country charges on goods from the U.S. He claims to have history on his side, appealing to the 1890 McKinley tariff that imposed some of the highest tariff rates in U.S. history and empowered President Benjamin Harrison to impose tariffs on a reciprocal basis.

This is worth taking literally and seriously because Mr. Trump meant what he said about tariffs when he ran for President in 2016. He imposed taxes on imports ranging from steel and aluminum to solar panels and washing machines, affecting imports worth hundreds of billions of dollars when the border taxes were implemented.

Protectionists pitch tariffs as a tax on other countries, but American consumers pay the price—a total of $80 billion during Mr. Trump’s term, according to a Tax Foundation analysis. This cost the U.S. 166,000 full-time-equivalent jobs, the Tax Foundation says, and the Trump trade tax wiped out roughly 12% of the economic benefit of the 2017 Tax Cuts and Jobs Act.

What about the impact on jobs? Before Covid-19 hit, U.S. employment in manufacturing rose 1.8%, according to the Bureau of Labor Statistics, as the civilian workforce overall grew 2.7%. That’s hardly an unusual jobs increase, and it could as easily be attributed to the corporate tax cut that caused companies to repatriate hundreds of billions of dollars in overseas cash. Deregulation also helped.

An analysis of the steel tariffs estimated an economic price of $900,000 for each job created. Because more U.S. companies buy metal than sell it, another study found increased steel prices cut manufacturing employment by 75,000.

The trade deficit isn’t a useful measure of economic performance, but Mr. Trump claims it is. In his first year in office, the U.S. imported $517 billion more than it exported in goods and services, according to data from the Census Bureau. That increased to $653 billion in 2020, and this relationship holds after adjusting for inflation. President Biden has continued Mr. Trump’s tariff policies, even as the trade deficit hit a record of $951 billion in 2022.

A new universal tariff would be more of the same, and then some. The last U.S. President to entertain a trade idea this radical was Herbert Hoover in 1930 with the Smoot-Hawley Tariff Act. That sweeping border tax triggered global retaliation that shrank world trade and contributed to what became the Great Depression. The Republican Party’s reputation for economic management didn’t recover for 50 years.

Mr. Trump also seems to forget we’re not in the 1980s anymore and Japan and West Germany aren’t the main economic rivals. China is. Trump tariffs aimed at Japan and the European Union have made it harder to rally allies for sensible enforcement when Chinese subsidies, import restrictions or intellectual-property theft bend global trading rules.

The risk for the U.S. economy is that the 2024 ballot won’t have any candidate who understands how trade boosts prosperity, and how trade with allies can make it easier to manage competitors. The Biden Administration has failed to reverse most of the Trump tariffs, and the Inflation Reduction Act came larded with trade-distorting subsidies that are sparking a trade war with the European Union.

President Biden’s abdication on trade includes a refusal to negotiate any new trade deals, even with an ally such as post-Brexit Britain that wants and needs one. His trade rep, Katherine Tai, doesn’t seem to do much except explain why she can’t do much.

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By the way, Mr. Trump for years has cited the McKinley tariffs but he appears never to have read what happened after those 1890 charges came into effect. Voters rebelled at the higher prices they were forced to pay, and Republicans were wiped out by free-trading Democrats in the 1890 midterm. Democrats under President Grover Cleveland in 1894 partially reversed the tariffs to dig the U.S. out of a recession.

Economic historians now believe those tariffs had little effect on boosting America’s astounding economic growth in that era, which was driven by industries not covered by the tariffs. As for McKinley, who pushed for his tariffs from the House of Representatives, he did become President in 1896—by campaigning in favor of the gold standard, a proxy for a stable value for money, against populist easy-money Democrat William Jennings Bryan.

Free trade isn’t popular in our dirigiste economic era, in part because our political leaders are afraid to defend it. The Trump tariff threat is all too real if he wins in 2024."