Trump, or How To Lose the Protectionist War

The trade war being waged by Donald Trump against Europe and China allows the U.S. president to employ rhetoric to score political points. However, so far, the trade war has not lived up to any of its promises, Eric Le Boucher writes, neither in terms of purchasing power, job creation nor lower production costs. On the contrary.

We learned this week that during the Group of Seven major industrial nations summit in Biarritz, Melania Trump was given an artisanal leather belt from leather goods maker Maison Laffargue’s Saint-Jean-de-Luz workshop. This comes at a time when her president husband, in retaliation against the GAFA* tax, has threatened to apply a 100% tariff on French champagne, wine and leather goods. The first lady sent Maison Laffargue a kind official thank you letter in which she touted “Basque excellence,” while President Trump posted a nasty tweet denouncing France’s “nationalist” trade practices. This is the way protectionism goes when it is meant to “win trade wars easily” (according to Trump), but also ends up conflicting with the lives of families.

Loss in Purchasing Power

Taken together, Trump’s protectionist measures have led to a $51 billion loss in purchasing power for U.S. consumers, according to economists, representing a 0.3% decrease in gross domestic product. At the same time, the gains made by U.S. manufacturers protected by the tariff barriers are estimated at $7 billion, or 0.004% of GDP. However, it should be noted that exporters have been penalized, including American soy farmers, who have now been deprived of access to the Chinese market, as the countries impacted by U.S. tariffs have counterattacked by imposing higher tariffs on U.S. goods. In 2018, the White House had to grant a $12 billion aid package to compensate soy farmers for their losses. The exact impact is difficult to quantify since the president has gone back and forth so many times, imposing tariff increases one day and then suspending them the next. But overall, the end result amounts to American consumers seeing price increases and manufacturers not gaining a thing.

There has been virtually no impact on foreign companies that have begun operating on U.S. soil to avoid tariffs. The impact is only positive for the automotive industry in the short term (with a 2.5% rise in employment), but in the long term, the impact is close to zero. The competitive position of American corporations has been weakened due to more costly spare parts imports, while some foreign companies are setting up shop in the U.S., although they have supposedly come to sell to the world’s No. 1 market. The new division of labor dictates that companies produce where they are selling, especially to prevent transportation-related carbon emissions and to align with the trend toward environmental awareness. In sum, Trump’s protectionism has cost households money and has not created any of the jobs he has tweeted about.

A More Aggressive Policy Approach

No matter what, so they say, his voters remain loyal to him. If the trade war is harder to win than it appears, it continues to be an easy-to-wield political weapon. Now that the battle against China is in a rut, Europe is becoming the target of new threats. Beijing is one step ahead of the game since time is on its side: Xi Jinping has all the time in the world to wait for another U.S. president to take office, as he can stick around while only making minor adjustments to his strategy for defeat. So Europe is finding itself under attack once again. This week, Trump broke off the armistice that was reached with Jean-Claude Juncker in the summer of 2018 and, strangely enough, the World Trade Organization condemned Europe for granting subsidies to Airbus, effectively legitimizing America’s retaliation. The first task of the new European Commission is to remake the EU by taking a much more aggressive policy approach, in short, falling in step with China.

In reality, Trump voters are not that satisfied. According to political calculations, during last year’s midterm elections, five seats – out of a total of 40 Republican congressional seats lost – were lost because the negative impacts of protectionism hit Republican towns the hardest. This applied to voters from farming regions, who have been adroitly targeted in China’s retaliation and who remain unappeased by aid from the Trump administration . The trade war is not politically advantageous for Republicans.

Trump’s decision to scrap Barack Obama’s health care plan subsidies came at an even higher cost with the loss of 15 congressional seats. In sum, Trump voters’ loyalty only lasts so long as they are not personally affected by his policies. Populist politics sounds great in campaign speeches, but in reality, it does not achieve any of its stated goals, and harms the very people it wooed to begin with.

*Editor’s note: GAFA stands for Google Apple Facebook Amazon, and is an acronym used to generally denote tech giants.