Trade Wars are Fought Within, Not Among, Nations

President Trump likes to talk of trade wars: with China, with Canada and Mexico, with Europe.  It doesn’t matter.  Trade wars are easy to win.  But, Mr. Trump and his enabler advisor Peter Navarro mistake who the enemy is in a trade war; it is not the foreign nation or their producers; they are, at best, collateral damage.  Rather, the enemy, the one who bears the brunt of a trade war, are the domestic consumers.

The Economist reports on a number of industry associations that oppose Trump’s tariffs on steel and aluminum.  Many of these industries are ones that were clamoring against foreign production and demanding tariffs of their own just a few months ago (eg Boeing, Ford).  If the steel and aluminum tariffs stick around, then these same companies will be put at a disadvantage.

But does the action stop there?  Absolutely not.  These same companies, seeing the bounties bestowed upon Nucor and Alcoa will, in turn, demand their own tariffs and their own subsidies (as they already have, in the case of Boeing).  Other producers will seek protection as well, further raising tariffs or subsidies.  There is no logical or natural stopping point for the trade war; indeed, all this becomes even worse if foreign nations raise their own trade barriers.  Internally, more and more calls for protection* arise and the government fights a trade war with its own people.  Every protectionist action will have a negative consequence on some other domestic actor who will have the incentive to seek his/her own protection.  What’s more, even producers not directly involved may seek some of the rents the government hands out.

Trade wars are devastating, but they are inaccurately described as being between two nations.  In reality, however, trade wars are civil wars.

*A point I should make explicit: tariffs are not the only form of protection firms might lobby for.  They may aim for tax breaks, subsidies, grants, etc.  This internal trade war can be fought even if tariffs never rise.

One thought on “Trade Wars are Fought Within, Not Among, Nations

  1. “Every protectionist action will have a negative consequence on some other domestic actor who will have the incentive to seek his/her own protection.”

    Job protection for politicians.

    Liked by 1 person

Comments are closed.