Trade Wars Are Weird

A trade war is a weird kind of war. We think of war as sending warriors and ordinance somewhere else to destroy a lot of people and stuff “over there,” to fight until finally someone gives up. Trade “war” is different because the weapons are different: trade barriers are imposed aggressively against another trading partner to stop ourselves from buying their stuff. They, in turn, will retaliate by not buying our stuff until someone “surrenders.” The war ends so trade can flow even more freely than before the “war.”

I can’t think of trade wars without recalling the scene from Mel Brooks’ iconic movie Blazing Saddles. The small, all white western town of Rock Ridge anxiously awaits its sheriff. A black man (Cleavon Little) shows up dressed in gold. Realizing their intense hostility to a black man parading himself as sheriff, he draws his gun, puts it to his own head, and takes himself hostage. The town, befuddled by the cognitive dissonance of a black stranger taking their sheriff hostage, lets him drag himself to the safety of the sheriff’s office. Catastrophe avoided; life, weird and confused, goes on because, well, life has to go on even in the face of life’s various dissonances.

Trade wars are a lot like this: nation’s taking themselves hostage to inflict pain on someone else. That is why there are always winners and losers in a trade war, just as there are always winners and losers in a trade peace. In fact, commercial activity and economic progress always means there are winners and losers. Recall the long-gone and little lamented buggy whip manufacturers.

One trade scholar described trade theory as the study of whose hand is in whose pocket, and trade policy as who will be pulling it out first. When we restrict imports, it punishes both domestic interests and our trading (reminder: these are not enemies, they are allies and partners in our economic progress who buy our stuff and sell us their stuff). Because we have punished them, they must retaliate. When they do, we counter-retaliate. Hence, war.

The problem, again, is the weapon. We block our purchases of their products, which some of us want. We shoot them in the foot, but through our own foot, or calf or thigh, depending on how recalcitrant our retaliating trading partners feel compelled to be. We hope that enough blood spatters on them to force surrender.

When George W. Bush imposed steel tariffs in 2002, retaliation was focused on Florida oranges, cars produced in Michigan, and other products in key swing states. The United States withdrew the tariffs on December 4. When the EU refused to let U.S. beef into European stores, the U.S. retaliated with tariffs on beef and pork products, goose pâté, Roquefort cheese, truffles, onions, carrots, preserved tomatoes, soups, yarn, Dijon mustard, juices, chicory, toasted breads, French chocolate, and jams, as well as agricultural-based byproducts, such as glue and wool grease. The list targeted especially France, Germany, Italy, and Denmark, Products from the United Kingdom were excluded because they had indicated support for lifting the ban.

The hard part with this weapon is to find goods for which trade will hurt the enemy more than yourself. In our trade skirmishes with the Japanese over autos under President Reagan, tariffs on luxury Japanese cars were initially thought strategically sound because rich U.S. consumers could afford it. Unfortunately, they were both unwilling and politically connected. That weapon was quickly withdrawn.

Trump’s trade war (sorry Mr. Kudlow, I mean “discussion”) has, of course, spurred retaliation. Canada, for instance, released a strategic swing state response targeting Mr. Ryan’s home state of Wisconsin—dairy, Harley-Davidson motorcycles, and his own district’s big cucumber and gherkin industry. Also making the list is Mitch McConnell’s Kentucky bourbon, Bernie Sander’s Vermont maple syrup, Pennsylvania’s Hershey chocolate, and Florida’s fresh orange juice, along with beer kegs, mineral water and soy sauce, mayonnaise, salad dressing, automatic dishwasher detergents and certain types of plywood.

The weapons for a trade war are crude and Pyrrhic.  They must be used carefully and strategically with an eye to the political pressure points that will make the ‘enemy’ blink before your own wounded make you blink. Fair warning Messrs Ryan, McConnell, Sanders, and of course Trump as we head into the November referendum. Some very carefully devised punishments will force selected domestic sectors to pay for the special subsidies given to steel and aluminum. The question is how they will make you pay?

Robert A. Rogowsky is Professor and Program Co-chair of the Masters in International Trade & Economic Diplomacy at the Middlebury Institute of International Studies in Monterey, CA and Adjunct Professor of Trade & Diplomacy at Georgetown University’s Masters School of Foreign Service.
These essays are the opinions strictly of the author. They do not necessarily reflect the views of the Institute or any officials of the Institute.


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