On July 10, 2018 the Trump
administration hit China with 10 percent tariffs on $200 billion worth of
imports, a penalty that is likely to affect the prices that U.S. consumers pay
for scores of products, ranging from computers to luggage.
Chinese officials
quickly responded, saying they were contemplating various measures to retaliate
against the U.S., including stepping up border inspections of U.S. goods, and
holding up licenses for U.S. companies to do business in China.
It was the latest
skirmish in a trade war that's been rapidly escalating since early this year —
a war in which Trump has attacked what he views as unfair Chinese trade
practices and demanded that the country buy more American products to reduce
the U.S.-China trade deficit, which totaled $376 billion last year. As Trump
has hit China with tariffs on tens of billions of dollars in goods, the Chinese
have responded by hitting back with comparable levies of their own against U.S.
products.
In addition, Trump is
waging trade wars on other fronts. In May, according to The Hill, Trump imposed
steel and aluminum tariffs on Canada, Mexico and the European Union. The U.S.'s
neighbor to the north immediately counterpunched, with Canadian Prime Minister
Justin Trudeau announcing that it would slap retaliatory tariffs on U.S.
exports to Canada.
It's hardly the first
time that the U.S. and other nations have become involved in such a conflict
over trade. Trade wars can happen for various reasons. It could be that one
nation decides that it's getting a raw deal because another nation provides
subsidies to its manufacturers, so that they can export goods that are priced
too low to compete with. Or it could be that a nation decides it wants to
nurture its own industries by hindering their foreign competitors with
protective tariffs.
The Opium Wars
Centuries ago, trade
wars often involved actual violence. In the 1700s and early 1800s, for example,
China sold a lot of tea and porcelain to the British Empire, so much that the
British got concerned about the outflow of silver to pay for it. They decided
to fix the trade imbalance by getting China to import large quantities of opium
that the British produced in India. When the Chinese government eventually
balked at this arrangement, the British sent in their warships, and forced the
Chinese to sign an 1842 treaty that not only opened up China to British trade,
but gave the territory of Hong Kong to the British. This conflict became known
as the First Opium War.
But even a bloodless
trade war can cause plenty of suffering. A lot of observers are seeing
unsettling parallels between Trump's multi-front trade warfare and the trade
war that erupted in the 1930s after President Herbert Hoover signed into law
the Smoot-Hawley act, which raised U.S. tariffs by an average of 16 percent. Other
countries enacted their own tariffs in response, leading to a disastrous global
decline in trade.
"Initially,
Smoot-Hawley was not a response to the Great Depression," Dartmouth
College economics professor Douglas A. Irwin, author of the 2011 book
"Peddling Protectionism: Smoot-Hawley and the Great Depression,"
explains in an email. "It was passed by the House in the spring of 1929,
before the business cycle peak at a time when the economy was doing well and
the unemployment rate was low.
"However, it got
held up in the Senate and by that time the stock market had crashed in the fall
of 1929 and the economy moving into a recession, which later became the
Depression. The economy continued to get worse after the passage of
Smoot-Hawley, and the retaliation against U.S. exports that occurred because of
it is thought to have contributed to the severe economic difficulties at the
time. So there is a cautionary tale here: Just because the economy is doing
well and close to a peak does not mean that things cannot go badly if one moves
in a protectionist direction."
Smoot-Hawley also
helped stimulate a surge of angry nationalism in other countries. "If one
country slaps tariffs on your goods, the usual response is to take offense and
retaliate rather than to turn the other cheek," Irwin explained.
"Both in 1930 and today, Canada was very upset with the U.S. tariff action
and retaliated. Nationalists gain strength on perceived slights. And just think
about how China still remembers being humiliated by Western powers during the
Opium Wars of the 19th century, and its vow never to be so weak again. When the
Trump administration bullies countries today on trade, it naturally leads other
countries to stiffen their resolve to resist the U.S. "
Who Takes the Hit?
Another big problem
with trade wars is that there's a lot of collateral damage. As Philip I. Levy,
a senior fellow on the global economy for the Chicago Council on Global
Affairs, recently pointed out, poor people tend to suffer disproportionally,
since basic necessities that they already struggle to afford — food, shoes,
clothing — can become more expensive.
Additionally, as Levy
writes in an email, certain sectors of the economy can be hit worse than
others. "If you are in a steel-using sector (e.g. an auto parts
manufacturer) you are more likely to be hurt by the Sec. 232 steel
tariffs." He also noted, "If you are in the construction sector, you
are likely hurt by tariffs on steel and on Canadian softwood lumber. These are
hits to income and employment, which are in addition to the hits people take as
consumers."
The producers of the
products that a government is waging war over — and their investors — stand to
benefit. "To be fair, if you are a shareholder in U.S. Steel, you're
pretty happy you don't have to face as much competition," Levy continued.
"True for workers, as well, but much of the job loss has been to
automation, not trade, so the tariffs don't fix that."
Though the world
economy and global trade are stronger today than they were in the early 1930s,
Levy argues that a trade war today might be even more damaging. "There's
this unusual argument about why this is a great time for a trade war," he
said. "It's a little like saying that today is a good day for me to slam
my hand in the car door, since I don't have to give a piano performance in the
near future. While that may be true, it's still not a good idea to slam my hand
in a car door.
"Why might now be
worse than the 1930s for the United States? Back then, everyone was doing it,
and we didn't really have global supply chains. Now, it is not the case that
all countries are raising trade barriers against everyone else. It is the
United States that is carving itself out of global supply chains."
Additionally, he notes, the rest of the world is still striking trade deals,
whether it's the European Union and Canada, EU-Japan, or the Comprehensive and
Progressive Agreement for Trans-Pacific Partnership. In Levy's opinion, Trump's
trade war "will uniquely disadvantage U.S. business."
source:
https://money.howstuffworks.com/who-wins-loses-in-trade-war.htm
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