President Donald Trump invited a trade war after slapping tariffs on steel and aluminum imports, daring other countries to act on threats of retaliation.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said in an early morning tweet on Friday.
Trump is facing anger from manufacturers and trade partners in China and Europe after announcing tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time.” The formal order is expected to be signed next week.
Republican Senator Ben Sasse of Nebraska cautioned “Trade wars are never won. Trade wars are lost by both sides,” in a statement. “If the President goes through with this, it will kill American jobs -- that’s what every trade war ultimately does. So much losing.”
Trump in a follow-up tweet Monday morning warned of more trade actions ahead, casting them as reciprocal taxes, a term he has used for imposing levies on imports from countries that charge higher duties on U.S. goods than the U.S. currently charges.
“We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!” Trump said in the tweet.
The aggressive stance has stoked fears of trade retaliation and roiled global markets. The U.S. dollar weakened for a second day against a basket of currencies, while equity markets across the U.S., Asia and Europe have declined.
I think I mentioned this before, but Trump sees trade as a zero-sum game, and the country that has a trade deficit as "losing."
I honestly think this is the wrong way to look at it. When a person purchases something for money, generally according to economic theory both the seller and the buyer are better off as a result of the transaction: the purchased good or service is worth more to the buyer than the money, and seller would rather have the money than the thing they are selling. That's the micro-icon version, but the same principle applies to trade between countries. There's no particular reason why the trade has to be "balanced" to maximize the benefit. I think Milton Friedman explains it better than I can though:
A few people will benefit from these tariffs, but many people will lose. On aggregate, the harm to the many outweighs the benefit to the few.
But apparently to Trump, it's all zero-sum. One side "wins," while the other side "loses."
When we have a trade deficit it means that more dollars (or other currencies) are leaving the country than coming in. But those dollars will eventually come back in some form, and even if they never come back, it doesn't really hurt us because the dollar is nothing more than a fiat currency. We can "print" as much of it as we need to (most of it never actually gets printed as cash notes). The dollar is used as an unofficial second currency in many foreign countries that don't have strong currencies of their own. That's no harm to us. Because of inflation, those dollars will be worth a little bit less every year, but they still hold their value better than most third-world currencies and thus are more attractive to hold than most other currencies. Those dollars that leave, never to come back, don't actually harm anyone in the US. In fact, it's more of a benefit really, because it's like they have an IOU but they never actually use it. Every year they don't use it, it's worth a little bit less.