Guarded sympathy for the Trump tariff war
Tariffs can be part of a national strategy. But Trump isn't up to the job.
So, Trump went forward with imposing broad, dramatic tariffs on our three biggest trading partners - Canada, Mexico, and China. Pretty much everybody - outside of the MAGA cult and submissive elected Republicans - has condemned this move, always called a "trade war".
If you've followed my posts, you know I am no fan of Trump - in particular, his drive to centralize and personalize power. It's a huge threat.
But in this case, let me give you an old-fashioned, union-ish, lefty economic take, rooted in my having grown up in the Rust Belt, where I've lived for all but six years of my life, that might back him up, just a little.
In economic discussions, tariffs are often called protectionism or protectionist. Now, normally protecting something sounds good, right?
But protectionism and protectionist became bad words in American politics starting in the late 70s, and that really intensified through the 90s into the 2000s. See, at the time, the US was pursuing the goal of creating a globally connected economy, with as few barriers to trade as possible. This was a bi-partisan program, supported by presidents and members of Congress from both parties. Famously Democratic President Bill Clinton fought for the North American Free Trade Agreement, or NAFTA, which took effect in 1994 - and was later modified into the USMCA agreement by Trump. A "highpoint" in this process of expanding global trade was when China was permitted to join the World Trade Organization in 2001. Being part of the WTO makes it far easier for a country to trade freely with other countries, and China - due to its Communist past - had been on the outside looking in. But now, thanks to agreeing - in theory - to some free market rules and norms, China was part of the club.
There were a few big, stated goals to this whole project of trade globalization. One was to make everyone, everywhere richer. We'll come back to this. Another, often less-stated goal, was to ensure, after the fall of the Soviet Union, that the US remain the predominant power on earth by linking all economies to ours. Finally, these linkages were going to transform Chinese politics - to make it more like the liberal democracies of the west. The theory there was that democracy follows along from capitalism.
Note the past tense there. If you follow Chinese politics at all, you know that the leader there, Xi Jinping, has gone the complete opposite direction - centralizing power in his hands and leading a crackdown on a free civil society.
But let's return to that everybody gets richer part.
Over the course of this expansion of global trade - and really overnight in the case of China joining the WTO - US workers were thrown into direct competition with far lower paid and far more numerous workers outside of the country. China benefitted, of course, but so did Mexico, Vietnam, India, and elsewhere. Anywhere there were cheaper labor costs. By the way, companies operating in these other countries also often didn't have to follow stricter, US-style environmental and labor rules, making them even more attractive places to do business. Oh, and additionally, companies that wanted to operate in China had to agree to partner directly with a Chinese company - often leading those companies to feel their corporate secrets were being stolen.
Okay, all of this together hit many domestic industries and workers hard.
The steel industry, concentrated in the industrial Midwest
All kinds of other manufacturing in the industrial Midwest, including car companies
This, by the way, is when we became the Rust Belt.
But it wasn't just the Midwest.
There were the shoe and garment industries, concentrated in North Carolina
The furniture industry, also in North Carolina, but also other parts of the South, Michigan, and elsewhere
Also during this time, Taiwan grew to be the biggest producer of microchips
And famously, call centers moved overseas, especially to India and the Philippines
Those are the losers. But there were winners, too.
Some industries were delighted to go global.
Silicon Valley and tech
Wall Street ate it up - as they always seem to do (until they need bailed out)
Entertainment has done well - movies, for example, but also sports
Logistics benefitted big time, too. Gotta move that stuff around somehow
And farmers have been able to sell crops worldwide - like soybeans to China
Those are the winners of a globalized world economy. Good for them.
But what about those losers?
The message to those people during all of those decades - especially the workers who lost their jobs and the towns that suffered collectively - was unmistakably clear: Tough luck.
Sure, we'll throw some federal job training programs at laid-off workers.
But bottom line, the world moves on. Get used to it. A glorious new future awaits.
Unions especially got labeled as living in the past.
Now, as an aside - I'll be straight up - I'm conflicted about unions. I see positives and negatives. If you, like me, like the idea of weekends and safe workplaces, you should thank unions. However, sometimes they can stand in the way of reasonable improvements in technology and processes.
Actually, that point leads me to a common counter-argument against the negative impacts of globalized trade. Many economists who have studied the disruption and decline of US industry during this period say that a big chunk of the job loss did not come from global labor competition but from so-called automation. Machines driven by computers could work faster, better, and so on. In other words, the robots took the jobs.
This is true to a certain extent. And I have say, to a certain extent, this sounds good. I mean, it used to be that most everybody in the US had to work on a farm, but then farm machinery came along - making farmers more productive - so that folks could move on to other kinds of jobs. This happened with manufacturing, too. That said, businesses also saw a way to take that messy human component out of the equation and seized on it. Trade-offs, all around.
But setting the automation debate aside for now, it remains undeniable that the globalization of the economy played a substantial role in the upending of US workers, communities, and industries. Sometimes this goes by the name of the China Shock. That's because China was the biggest player to come on the scene in globalization, but there had been similar experiences earlier with Japanese and German companies. And there are the famous maquiladoras in Mexico. These are manufacturing plants set up in Mexico to take advantage of the cheap labor and lax laws. The finished product can then re-enter the US, free of fees or restrictions. More than one Midwest factory got shipped off to Mexico after NAFTA.
So, this more-or-less sudden global competition came on with such speed and volume, that workers couldn't adjust quickly enough. Economic studies have shown that sometimes affected communities eventually recovered from the China Shock, but the workers often did not. They were left hung out to dry. There never was to be any kind of true compensation for the losers of this national project of globalization. And again, this was a national project - a conscious choice made by lawmakers and leaders of both parties.
Look, I think working hard and personal responsibility are good things, and we can sing the praises all day long of the American attitude of self-reliance. But people swim in a social sea. We have to live with and respond to conditions as they are set around us.
The shock of globalization was no natural disaster - no hurricane or earthquake.
It was a choice. A policy choice.
And for many, it was a man-made disaster.
Let me tell you, as a lifelong Midwesterner - this created some resentment.
And Trump rode that resentment, in part, all the way to the White House in 2016.
It's not for nothing that he's highly competitive in Rust Belt States.
In fact, as another quick aside, there was a Donald Trump before Trump. His name was Jim Traficant - a congressman from northeast Ohio. He did Trump's schtick years before, right down to the crazy hair. Look him up.
Okay, now to the Trump tariff war and those protectionist policies. Or honestly, maybe we should call this the Trump-Biden tariff war at this point, because Biden continued many of the tariffs against China.
Anyway, maybe we need a solid dose of protectionism.
If - and this is a big "if", especially when it comes to Trump, as I'll explain in a minute - if a tariff regime is done right, it could have positive outcomes for the US. Through a rebalancing of the economic calculations of globalization, we could see factories and services brought back to the US, helping to rebuild local communities and economies. As Trump himself pointed out in a recent Truth social post, in all caps, "If companies move to the United States, there are no tariffs!"
And lo and behold, Reuters reported recently that Honda is now planning to make its latest Civic hybrid in Indiana, rather than Mexico.
So, there's bringing back investment and jobs as a plus to a tariff regime. But there's always national security. The fact is that certain manufacturing and skills capacities should absolutely exist within our borders. The Detroit car companies became the famous "arsenal of democracy" when they switched to wartime production during World War II. In a modern vein, we need more computer chip capacity here. Every modern device, including weapons, has them. And we always should be able to produce enough energy, food, and clear water to sustain ourselves in a pinch.
We can allow foreign competitors for sure. But if we have to put in protectionist barriers in order to develop or preserve critical industries domestically, we should do that.
Another argument in favor of tariffs and other protectionist barriers is to protect infant, startup industries. This has a long history in the US, by the way, starting with founding father Alexander Hamilton. Soon after the US was formed, he put together a plan to help develop American manufacturing through protectionism. At the time, the British - our enemies at that point, of course - dominated manufacturing. That stood in the way of not only national security, but also in the way of modernizing and growing the US economy.
To summarize, what makes a good tariff regime vs. a bad tariff regime, quoting economics writer Noah Smith, it has to be targeted.
Tariffs have to have concrete purposes. And they have to be carefully thought through.
This is not how Trump goes about it.
Instead, he's implementing across-the-board tariffs, with no particular economic or national security focus in mind. In fact, he often says the purpose is to stop illegal drug flows. Not exactly economics. And even if that was his purpose, he's targeting Canada, from which practically no drugs arrive. Instead, he's just targeting an economically developed, stably democratic ally because... reasons? Maybe this is part of his baloney make Canada the 51st state imperial BS.
Now, there's news today that Trump decided that he'll grant a one-month exemption to those sweeping tariffs to carmakers - Ford, General Motors, and the like. Car companies actually make stuff all over North America and were particularly vulnerable to an unfocused, across-the-board tariff.
Great, right?
See, here's the other problem with Trump's approach. Not only is it not targeted or focused, it's capricious. It's whatever he feels from day to day. And for whatever reason day to day. This, of course, is not how to manage an economy. Such an approach would get him fired from a CEO job in a week.
But beyond that - this ties into my larger theme and fear about Trump - his approach to tariffs is dangerous because it's really about centralizing and personalizing power.
Why did Trump relent on the car companies? Is it strictly because he's a good guy. Maybe.
But it's also possible that he likes being able to call the shots. Imagine this - Nice industry you got there. But I need something. I feel a tariff coming on.
Look, this is all legal. Congress has passed laws that, under certain emergency situations, presidents can implement tariffs of any kind and size at will. (And interestingly, with Trump, there's always an emergency of some kind.) Again, all legal. But not necessarily Constitutional. I mean, it's not an inherent power of the presidency. Congress could take back this power - in part or completely - and come up with a well-developed, purposeful tariff regime. They could provide oversight of the motivations and results of presidentially imposed tariffs. They really could. Good luck with that, of course, from the Republican suck-ups in Congress. And in the meantime, Trump just gets to wield unchecked power. That is not good for a democratic republic.
Let's start to wrap up here. There are other dangers to Trump's approach to tariffs that get a lot of attention - and rightly so. Let me talk about those briefly.
It is highly likely that he will boost inflation. That is not good. He could certainly be proposing policies to blunt this - for example, raising taxes or cutting spending. But nope, the plan right now is mostly tax cuts and budget deficits as far as the eye can see. And if inflation does go up, the Federal Reserve might be forced to increase interest rates. That could bring on recession. Hell, the uncertainty alone from Trump's capriciousness might get us to that spot. See what I mean about not thought through.
Also, a lot was made of the stock market declining for a day after he announced the tariffs - though at this point, it looks like markets have recovered. Tapping into my inner lefty economic instincts, I have to ask: Who cares? Stocks are predominantly held by the wealthy. If properly designed, tariffs can rebalance the economy toward domestic industries and workers, then maybe that's a price to pay. Again, that properly designed part. (By the way, in the interest of full disclosure, I personally get hurt by the stock market drops. Take that for what it's worth.)
Many also talk about how Trump had to pay off farmers when they took a hit from his first round of tariffs from his first term. This was indeed a thing. Carrying through what I said above, from a certain perspective, who cares? We should look for ways to help soften the blow of national policies for Americans. Now, that said, these are not "national" policies in a real sense. Instead, they're whims by one man, with no input from Congress. So, what looks like just compensation actually just feels like a payoff for political support. Rural voters overwhelmingly supported Trump.
Finally, as I've already mentioned with Canada, Trump is damaging our relationships with other countries and destabilizing the world. It's a further upending of the US-led world order for, again... reasons? But that's not unique to tariffs, of course. Nice pivot to Russia, Donald.
Okay, this has really gone on, so let's really, really wrap up by getting a couple of facts straight.
Americans absolutely will pay all or some of higher tariffs. It depends on the product. Foreign companies might cover part of the cost, but never all of it. I'm sick of his stupidity or lying on this point.
And these are taxes, straight up. Different name, same thing. How fortunate for politicians that there are many names for taxes.
Regardless of how he ultimately goes on his tariffs, Trump seems to realize that the negatives from his policy might hit sooner than the benefits. He has said that he believes that there will be what he calls "disruption", though he says it will be short-term and that people will understand. Given how he's handling it so far, well, we'll see on both of those points.
Either way, a lot of damage already occurred to many communities and workers across the US over the course of globalization, with very little sympathy extended in return. That damage did not happen overnight, and the fix won't happen overnight, either.
But the personalized, extractive, wildfire approach Trump has taken to tariffs isn't the solution, either.
Instead, we have to get them right. They can be part of the mix. That is, if Trump doesn't end up discrediting the entire idea.
If we do this as a nation, with deliberation and consideration, we'll make strides.
And we'll do it right and justly, as long as we're honest about the consequences - and compassionate toward those who suffer them.
Good luck, America.