Imagine you are the commanding general of your nation’s armed forces and head the national government.
You decide that another country is getting “cute” and is harming your country. The only way to take on that country is to declare world war, even though your closest allies will be hit far harder than your intended target.
So you suddenly declare war, proclaiming that wars like this are “easy to win.” While there are always dead and wounded on both sides in any war, you think the other side will surrender immediately, and your country will suffer no casualties.
This is not fiction. It happened last week when President Trump announced high tariffs on imports of steel and aluminum. He ignored the negative reactions of many other countries and congressional leaders of his own party.
“Cut off imports,” he tweeted. “When we are down $100 billion with a certain country and they get cute, don’t trade any more. We win big. It’s easy.”
Trump attended Wharton, a top university for economic studies, but he must have missed a few classes. He failed to learn that if the U.S. cuts off some imports from another country, that country can retaliate by cutting imports of at least equal value from the U.S.
The country Trump wanted to hit was China. The country Trump did hit was Canada, the leading foreign supplier of steel. China doesn’t even make the top ten suppliers
Even worse, Trump justified the tariff hike on national security grounds, finding that steel was crucial to defense and the country could not become dependent on foreign suppliers, which account for about one-third of steel used in the U.S. Of the top four domestic steel producers, two are foreign owned.
Canada shares defense of the North American airspace with the U.S. and is one of the most trusted U.S. allies. It has fought at the side of the U.S. in major wars. It is hardly a security threat.
When Trump learned of the impact on Canada, his administration said the U.S. would temporarily suspend the tariff increase for Canada and Mexico as a way of forcing them to come to an agreement in the NAFTA negotiations.
In those talks, Canada says the Americans have adopted a my-way-or-the-highway approach. In short, only if Canada does what the U.S. wants can it avoid the steel tariffs. In war, that’s called unconditional surrender. But this isn’t really war, so it amounts to bullying your best friend.
Trump’s policy would hurt his own people in two ways. First, Canada has declared the tariff increases are “absolutely unacceptable” and has said it would retaliate. It would identify important imports from the U.S. and levy high tariffs on them to cut American sales.
Here’s how that could hurt. Some 45.5 percent of Maine exports abroad go to Canada. That amounts to about $1.2 billion in sales each year. If Canada chooses to hit some items Maine exports, some Mainers could lose their jobs.
Mainers and workers elsewhere would be unemployed so that steelworkers could keep their jobs. In effect, that’s a federal tax on Maine. But it’s not the only one.
The other effect on Americans will be higher retail prices. The reason imports displace domestic production is that they are cheaper. Everything made using imported steel costs less than it would if manufacturers had to use domestic steel. When you buy a car, its price will reflect higher cost steel.
Bath Iron Works, one of the nation’s two builders of Navy destroyers, will be forced to charge taxpayers more for the vessels. Even if BIW has always used American steel, if Canadian competitors were driven from the market, domestic prices might increase.
Trump seems to believe that the U.S. should have a favorable trade balance with every other country, even if that means higher prices for American goods. He sees all trade relationships as a form of war, which somehow the U.S. can easily win.
For about a century, the world has come to understand that greater efficiency and hence lower costs can come through international trade. National economies have become tied together.
Trump wants out of these relationships. The risk is that other countries will take him seriously and replace American imports with those from the rest of the world, especially China.
If the criticism gets to Trump, leading him to soften his policy, he may have learned the rest of Wharton’s lessons on trade.
Otherwise, Trump’s economic policy can turn the United States, a continental nation, into an island.