No, we are not in the midst of a trade war. A trade scuffle, surely. But not a war. At least not yet.
Yes, President Trump has imposed tariffs on steel and aluminium imports from Canada, Mexico, and the European Union. Canada will be the hardest hit: America accounts for 90 percent of its steel exports. And yes, these allies have promised to retaliate.
But there are three reasons for not counting this a war:
The first is that Trump, who believes his statements about his negotiating prowess, often opens negotiations with a threat to commit mayhem, to break all the crockery, to shatter the poorly negotiated agreements he has inherited from his predecessors. (This show of his superiority to his predecessors he regards as a necessity). He is confirmed in his view by his recent experience. His threat to nuke North Korea persuaded its dictator that it might be a good idea to sit down and negotiate. His threat to raise tariffs and take other steps against China’s trade practices persuaded Xi to promise to open financial markets and lower tariffs on imported cars. Surely, reasons Trump, sauce for his enemies is sauce for his allies.
The allies, who view their trade relations with the United States as part of a broader alliance, are offended as much by the mechanism Trump has chosen to use as by the tariffs themselves. The administration knew that it would be unlikely to push these tariffs through Congress, which has the constitutional authority to “lay and collect taxes, duties, imposts and excises.” Republicans who believe that free trade is the route to prosperity would combine with Democrats who feel better after saying “no” to the president, to shoot down his tariff proposals. So he resorted to a statute that allows him to issue an executive order imposing tariffs, if imports constitute a threat to national security.
The definition of such threats is broad enough to allow the administration’s lawyers to conjure a national security argument in support of the tariffs. Canada’s prime minister Justin Trudeau called the idea that Canada poses a threat to U.S. national security “an affront to the Canadians who died” alongside Americans in battles.
The second reason this scuffle cannot be called a war is the minor effect it can have on the economies of the United States and its trading partners. Commerce Secretary Wilbur Ross points out that the effect of the Trump tariffs on prices paid by American consumers will be trivial-less than one cent on the cost of a can of beer. As for retaliatory tariffs, they will hardly be noticeable in our $18 trillion economy. But they will be noticeable indeed if they reduce sales of the specific products at which they are aimed. Canada’s retaliation list has been compiled to “exert maximum pain politically for the president,” says Maryscott Greenwood of the Canadian American Business Council. It ranges from Kentucky, where 95 percent of the world’s bourbon is made, to Pennsylvania, home of the town of Hershey, where the famous chocolates are made. These are the homes of the leader of the Republican majority in the Senate, and of a hotly contested Senate seat, respectively.
The third reason we are not in trade war just yet is that it would be consistent with the president’s negotiating style to gain a few concessions, declare victory at a rally of his supporters, roll back the tariffs, and move on to the next international arrangement his core voters want to see wrecked. Secretary Ross hinted as much when he told reporters Trump’s refusal to extend exemptions from the tariffs is “part of continuing discussions . . . NAFTA negotiations didn’t get far enough to justify another postponement.” In other words, Trump is using tariffs to pressure Mexico’s and Canada’s negotiators to end their resistance to his demands that the revised agreement set minimum wages for Mexican auto workers, raise the U.S.-made content in imported automobiles, and limit the length of the agreement to three years.
Trump will have an opportunity to set in motion a reconciliation with several of America’s trading partners-the E.U., Canada, and Japan-later this week when the G-7 meet in La Malbie, in Quebec. If his principal economic adviser Larry Kudlow, a dedicated free trader, is right that this is merely a spat among friends, and that all the president is really after is reciprocity-lower tariffs on cars, for example-and help in his trade battles with China, peace rather than war might break out.
None of this is to say that the president is wrong when he says that “free trade” has come to mean, in practice, a system that disadvantages the United States. According to the World Trade Organisation, U.S. average tariffs (trade weighted), at 2.4 percent, are lower than those of the E.U. (3.0 percent), Canada (3.1 percent), Mexico (4.5 percent), and China (4.4 percent). Germans pay 2.5 percent duty on cars they send here while our manufacturers pay 10 percent on cars we export to the European Union.
Nor is it to say that this scuffle might not have costs that are difficult to measure. Easily disrupted supply chains snake around the globe: autos often go back and forth across the U.S.-Canadian border multiple times before moving to dealer showrooms. Jamie Dimon, CEO of JPMorgan Chase, said a few months ago that Trump has “legitimate complaints” over trade and it is “not unreasonable for him to seek more equitable terms.” And last week called upon the WTO to “get its act together” and fix some of the problems. But he adds that tariffs “are the wrong way to go about it . . . and could hurt growth.”
Trump plans to base his November campaign for Republican congressional candidates and his 2020 campaign for reelection on the growth Dimon says tariffs are threatening. So he just might heed the banker’s warning. And move on to the more important matter of China, a nation with which a trade war might well be worth winning since the issue is our industries of the future (such as Artificial Intelligence) rather than the old-line metal bashers on which Trump seems fixated.