Today Trump opened another battlefront in his trade wars, with duties slammed on Chinese goods worth $34 billion. Expect China to retaliate with counter tariffs on US imports. China’s commerce minister was quick to announce: “China promised to not fire the first shot, but to defend national core interests and the interests of the people, it has no choice but to strike back as necessary”. A few hours later, China filed a complaint with the World Trade Organization, its second one.
Conventional wisdom has it that nobody wins from a trade war. Is it wise to ignore it? Trump has no doubts, he is convinced his trade wars will Make America Great Again.
This reminds me of the Italian captain who sank his own boat out of bravado. Remember Captain Francesco Schettino who famously sank the Costa Concordia cruise ship off the Italian island of Giglio in January 2012? He did this serenading a pretty lady in the dead of night, showing off his ability to sail close to the rocks. The ship hit the shore, capsized and 32 passengers and crew died.
Think of that beautiful cruise ship as a metaphor for the international order that America built after World War II, ensuring peace and prosperity through, inter alia, global trade. Now, Trump, like Captain Schettino, is steering the world ship towards the rocks while serenading his base:
Extraordinary. Watch how Trump’s audience looks enraptured, captivated by his show. And the numbers Trump throws around are totally out of context. Consider what he says of Canada, referring in a tone of outrage to a 275% tariff barrier. As if US farmers don’t have access to Canada’s markets because of it.
Is that the case? The fact is that 275% tariff barrier (which is indeed outrageous) only concerns a very small section of the market, milk and milk products. On average, trade barriers with Canada, as with all other advanced countries, are very low, around 2% to 5%. Not really enough to drive imbalances in trade.
The Real Causes of US Trade Deficits
US trade deficits have other causes, and they are nothing new. They’ve been going on since the 1960s, arising mainly from:...
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