Republican presidential hopeful Donald Trump is fond of bragging that he didn’t start a war during his first stint in the White House, but if he follows through on his threat to hike tariffs to levels not seen in nearly a century, he risks sparking a massive trade war that could be devastating — not only for the global economy, but for the entire free world.
Trump’s first term saw him use tariffs, or the threat thereof, to gain trade concessions from his allies, but his main target was the People’s Republic of China, which the president correctly recognized as a fascist dictatorship intent on using its economic muscle to further its geopolitical goals long before most world leaders.
This is a policy that has largely been continued by the Biden administration, but it has come at a significant cost to American consumers. A June report from the Tax Foundation, a Washington-based think-tank, found that Trump’s tariffs constituted “one of the largest tax increases in decades,” and that, combined with those instituted under President Joe Biden, they amount to a tax hike of US$625 (C$868) a year for the average American household.
But those tariffs will pale in comparison to what Trump plans to do if he wins next Tuesday’s election. In recent months, he’s been talking about instituting a “universal tariff” of between 10 and 20 per cent on most, if not all, foreign imports, with those coming from China being hit with punitive charges of 60 per cent or more.
This would upend decades of American economic and foreign policy, which worked to tear down the old mercantilist system — in which countries view trade as a zero-sum game and seek to maximize wealth, at the expense of their own economic productivity — and ushered in an era of free trade and capitalism that has brought unprecedented increases in global living standards.
And it would hit American consumers the hardest, for as much as Trump likes to suggest that tariffs are paid for by foreign countries, the fact of the matter is that they’re almost always passed along to domestic consumers in the form of higher prices.
A recent report from the Budget Lab at Yale University estimated that a 10 per cent across-the-board tariff coupled with a 60 per cent levy on Chinese imports would reduce real gross domestic product by upwards of 1.4 per cent over the medium term and raise consumer prices by between 1.4 and 5.1 per cent, costing American households between US$1,900 and US$7,600 a year.
The reason is simple: retailers selling goods from other countries, and manufacturers that use foreign inputs, will have to increase prices to cover the cost of the new tax; at the same time, domestic producers will face less competition, allowing them to sell their wares at a higher markup.
Indeed, there’s good reason why practically all economists acknowledge the value of free trade: history has proven the alternative to be an abject failure, while free trade and free markets have brought unprecedented economic and technological growth.
Some observers have argued that Trump is unlikely to follow through on his tariff threats given his propensity for counterfactual bluster, his history of threatening radical policy moves to gain concessions in negotiations and the fact that his actions were somewhat tempered during his first term.
The big difference, however, is that the last Trump White House was staffed by people who were willing to stand up to the president and prevent him from following through on rash decisions.
As veteran journalist Bob Woodward wrote in his 2018 book, “Fear: Trump in the White House,” the only thing that prevented the president from ripping up NAFTA was that two of his staffers surreptitiously snatched the withdrawal letters from his desk — assuming, apparently correctly, that Trump would simply forget he ever ordered them in the first place.
Should Trump win on Nov. 5, it’s readily apparent that he will have learned the lessons of the past, and will surround himself by “yes men” willing to carry out his every order, regardless of the consequences.
In this case, that would almost certainly include a showdown with the World Trade Organization, which could see the U.S. withdraw from the multilateral organization intended to break down trade barriers, as Trump reportedly considered doing in 2018. It would also spark trade wars with America’s allies, including Canada, at a time when the world’s dictatorships are increasingly working together to upend the liberal economic order.
Just last week, leaders of the BRICS nations — led by Brazil, Russia, India, China and South Africa — met in Russia to affirm their trading relationship, which has allowed the Russian economy to withstand western sanctions as President Vladimir Putin continues his war of aggression in Ukraine. Iran has also managed to evade sanctions by selling its oil to China.
Meanwhile, Russia’s war against Ukraine is being aided by North Korean troops, along with Iranian drones and missiles, and Iran’s arsenal is being bolstered by Russian and Chinese weapons, as the Islamic Republic and its terrorist proxies launch attacks against Israel and U.S. interests in the Middle East.
This is a critical point in history in which the world’s liberal democracies should be looking to increase their economic co-operation to counter the very real threat posed by their enemies. A situation in which western economies become less competitive and democratic leaders get preoccupied with trade disputes between friendly nations is exactly what our foes want. And that’s precisely what they’ll get if Trump is elected and follows through on his threat to introduce crippling tariffs on foreign goods.
National Post
[email protected]
Twitter.com/accessd