IT’S not long since President Trump promised post-Brexit Britain a “very big and exciting” trade deal with the United States. Sadly, his first actual trade measure points in the opposite direction. He has announced that he will be slapping a 25-per-cent tariff on steel imports, to target the Chinese and Germans. But it will inevitably damage the UK, too.
There is almost universal consensus among economists that this kind of trade protectionism damages global economic growth and welfare. So why is President Trump doing this? There are economic answers to that question, but there are also political and moral ones.
Unpack the economics, and a few things are clear. Producers in China will be worse off. So will American consumers, who have, until now, benefited from the cheap prices of Chinese imports. The one group who might be said to profit would be American producers, whose steel will no longer face competition from cheap Chinese goods. But, in global terms, most people will be worse off.
Yet, in political terms, a significant community are promised that they will be advantaged. They are the people who voted for President Trump, whose election campaign exploited the discontent of unemployed folk in the “rust bucket” states of mid-west America, where the old manufacturing industries are dead or in decline. “Trade wars are good, and easy to win,” President Trump posted on Twitter, apparently ignorant of the fact that President George W. Bush’s steel imports cost 200,000 American jobs in related industries. World stock markets tumbled in response.
What connects President Trump with Brexit — apart from his inconsistent attitudes to trade deals with the UK — is that they are both products of the votes of a politically disaffected group of those Mr Trump calls “little people”, who feel that their lost jobs and falling living standards are the fault of the globalised economy. They have some grounds for thinking that. But will protectionist policies — and the tit-for-tat trade wars with which other nations may respond — make things better? They will certainly fulfil the familiar urge of politicians that “something must be done”.
So are trade wars the right thing, when history shows that imposing tariffs to protect one industry can damage another?
In any changing economy, there will always be people who are victims. The story of technological change is the story of people who have fallen out of work — driving horse-drawn cabs, lighting streetlamps, setting type, operating switchboards, making film for cameras, running video-hire stores, etc. The moral imperative for governments is not to resist such change but rather to cushion its social impact and retrain people so that they can find new jobs.
The last great bout of world protectionism came after the Great Depression of 1929. It brought the rise of populist politicians offering easy solutions to complex problems. Within a generation, world war broke out. The connections were not directly causal, of course, but we have had our global financial crisis, in 2008, and it will be unhelpful if the world’s politicians now respond with another spasm of trade protectionism. Our world is unstable enough already without that.