Hugh Riminton: Trump Is Learning A Painful Lesson About Trade Wars
Everyone loves a war. At least in the beginning.
In the 11th century, 60,000 adventurers marched off on the First Crusade on little more than a fired up speech from the Pope. Wars in Vietnam and Iraq both enjoyed public support at the start. Germans cheered Hitler’s blitzkrieg until they discovered that Churchill was right -- they would “reap the whirlwind".
The life cycle for trade wars is much the same.
Campaigning for the presidency three years ago, Donald Trump found the crowds would cheer him as he promised to stop the trade “rip-offs” from China and Mexico.
“Right here,” he told a blue collar crowd in Michigan, “you’ve lost one in seven manufacturing jobs since Bill Clinton put China into the World Trade Organisation.”
The front-runner, Hillary Clinton, had a record, he said, of “giving our jobs away to other countries".
They lapped it up. Michigan voted Republican for the first time since 1988. Blue collar and farm states that had gone for Obama four years earlier -- Michigan, Iowa, Ohio, Pennsylvania and Wisconsin -- were the key to Trump’s victory.
Now we are in the trade war he promised. And suddenly heartland Americans are realising they are the collateral damage.
The Iowa Corn Growers Association lamented this week the Trump administration had put them in “one hell of a bad situation".
On Friday, the US National Farmers Union warned President Trump’s trade war was “making things worse".
The stock market -- often used by President Trump as a marker of his success -- has dropped more than five percent in as many weeks.
There are growing warnings the US could be in recession by next year, just as Trump is seeking re-election. A Bloomberg survey of leading economists now puts the risk of such a downturn at 35 percent.
At the same time, the US federal budget deficit is set to hit one trillion dollars next year. That’s one thousand billion dollars in the red for a single year.
Not only is that a blow to Donald Trump’s assertion that he’s a man “who gets money”, it leaves the administration with few options to stimulate the economy if the slowdown worsens. Trump wants the US Federal Reserve to cut interest rates further. The Fed is resisting. One consequence is a strengthening US dollar, which does further damage to US exporters.
It doesn’t help that Trump’s conduct of his trade war shifts with every tweet.
When China last week announced tariffs on US$75 billion of American imports -- in response to Trump’s announcement of tariffs on a further US$300 billion of Chinese goods -- the president went nuts.
“Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME,” he said in a tweet.
In his most recent tweet, he’s back to being conciliatory.
“Great respect for the fact that President Xi & his Representatives want 'calm resolution.' So impressed that they are willing to come out & state the facts so accurately. This is why he is a great leader & representing a great country. Talks are continuing!”
Donald Trump is finding trade wars are like real wars -- great fun until the body count begins.
But once underway, like real wars, they are hard to bring to an honourable end.