COMMENTARY: Trade wars are unnecessary, destructive, and ultimately have no winners
In what may turn out to be one of the most consequential weeks of Justin Trudeau’s tenure as prime minister, he’s been forced into a pair of decisions that were both dreadful and yet probably necessary under the circumstances.
One can reasonably lay some blame at Trudeau’s feet for the Trans Mountain pipeline debacle, but the fact that we’re dealing with an impulsive, irrational, and erratic American president is completely beyond Trudeau’s control.
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So, as much as the imposition of tariffs on a variety of American imports will hurt Canadian consumers, the imposition of new U.S. tariffs on Canadian steel and aluminum begged some sort of response. Therein the madness of trade wars: they involve shooting yourself in the foot as much as they involve shooting at your enemy.
Contrary to what U.S. President Donald Trump has suggested, trade wars are neither good nor easy to win. I suppose we’ll once again learn this lesson the hard way. The only question remains how much damage will be done before the madness subsides.
For all the wild swings in Trump’s political ideology, such as it is, an obsession with protectionist policies has been the one constant. The obsession seems particularly acute with regard to the steel and aluminum industries. The tariffs shouldn’t come as a surprise; the only surprise is the fact that Trump waited over a year to impose these tariffs.
Three months ago, Trump announced tariffs of 25 per cent on all imported steel and 10 per cent on all aluminum imports. Canada, Mexico, and European nations were exempt, presumably so Trump could try to exert some leverage in negotiating new trade deals — an exemption that has now ended. For all his talk of being a master negotiator, however, Trump has very little to show in the way of new trade deals.
He has, though, shown an opportunistic and disingenuous streak in utilizing his authority to impose tariffs. It’s a national security provision of the U.S. Trade Expansion Act that allows the president to act unilaterally. The notion that steel from NORAD and NATO allies — Canada in particular — represents a “national security” threat to the United States is an absurd proposition, belied by Trump’s own rhetoric.
If Trump was looking for a trade war, he’s got it. It’s not just the steel and aluminum tariffs, either. The White House is preparing to impose a raft of new tariffs on a long list of Chinese products, and the Chinese are preparing to respond vigorously.
In terms of global economies, the U.S. is certainly the big fish, especially when compared to Canada. We’re not likely to “win” any sort of trade war with the U.S. But what does “winning” even look like? The U.S. is doing tremendous damage to its own economy in the process, which doesn’t sound like anything one might call a “victory.”
In 2002, for example, the U.S. imposed tariffs on steel and aluminum imports — tariffs that didn’t go as far as these new ones do. The end result was about 200,000 jobs lost and about US$4 billion in lost wages. Not only are these tariffs larger and broader, but the U.S. economy has shifted even further toward industries that use steel and aluminum.
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When you make vehicles, appliances, and even cans of beer more expensive, that not only hurts those industries but also punishes consumers. Tariffs are taxes, after all.
Already, according to the US Chamber of Commerce, steel prices have risen 40 per cent in the U.S. due to the imposition of tariffs, and are about 50 per cent higher than in Europe or China. For manufacturers who have to purchase steel, that’s a huge tax hit.
The path to prosperity is not paved with protectionism. As Republican senator Ben Sasse noted, “blanket protectionism is a big part of why America had a Great Depression.”
So while it’s understandable that we expect our leaders to retaliate when protectionist shots are fired, we’re really just adding to the problem. And it’s not only damage to our economies we should fear, but also lasting damage to the liberalized global trade order that has proved to be so successful.
Trudeau is right when he describes Trump’s actions as “totally unacceptable,” and he’s sadly also probably correct when he says that there is no sign of common sense prevailing here. That we would then join the U.S. in jumping off the protectionist cliff illustrates the utter madness of such trade wars.
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