If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage. The general industry of the country, being always in proportion of the capital which employs it, will not thereby be diminished ... but only left to find out the way in which it can be employed with greater advantage.
— Adam Smith, 18th century Scottish philosopher, sometimes considered to be the “father” of modern economic theory.
The resignation of Gary Cohn, director of the National Economic Council, has gotten the Disney-like World of Washington into another bad case of the vapors. Cohn, a former president of Goldman Sachs, was one of the few remaining adult members of President Trump’s inner circle. He is thought to have packed it in when the president, ignoring his advice, decided to impose new tariffs on imported steel (25 percent) and aluminum (10 percent).
Traditional economists, it seems safe to say, are in shocked dismay over what not a few think is the worst threat to the world economy since the Smoot-Hawley tariff of 1930 that led, arguably, to the decade-long Great Depression. Those who feel this way may indeed be right. There is rarely a good reason to engage in a trade war, especially one against both friends and enemies on the field of battle.
The White House seems to be backing off its initial “no exceptions” stance on the Trump tariffs. Our next door neighbors, Canada and Mexico, may be given a pass. Let’s hope so. Canada is the world’s biggest exporter of steel to the United States, selling us roughly three times as much as China.
The admittedly suspect and dismal science of economics perhaps can put some perspective on where Trump is coming from. (It was 18th century philosopher and historian Thomas Carlyle, incidentally, who described economics as “a dreary, desolate and, indeed, quite abject and distressing … dismal science.”)
“Comparative advantage” is a bedrock economic principle that says when a nation exports goods it can produce more efficiently and cheaper than its trading partner, and imports what that partner can sell at lesser cost, then such an exchange leads to higher standards of living in both.
What sows confusion with some, including most likely the president himself, is that a trade imbalance is not ordinarily damaging to the economy of the trading partner running a deficit. It’s a bit more complicated than that.
The dollars spent to cancel out a trade imbalance ordinarily are either borrowed back to help finance budget deficits, or returned as capital investments, eventually leading to greater economic productivity and economic growth both here at home and abroad. In one sense then, an unfavorable balance in trade is not necessarily a bad thing.
There are, of course, other considerations beyond the purely economic ones affecting Trump’s tariff plan.
It is true that U.S. national interest requires that this country maintain the ability to produce, domestically, certain key strategic materials. Steel and aluminum most certainly fall in this category. So, presumably, does oil, giving credence to the effort of this and past administrations to lessen America’s dependency on foreign sources of supply.
There is likely a third and less admirable reason behind the Trump tariffs. In a word, it’s politics. Candidate Trump’s promise to revive the then stumbling steel and aluminum industries in America’s Rust Belt states undoubtedly led to his winning margin in the 2016 presidential election. Since then, well before his protectionist tariffs are in place, metals industries in this country have done very well, along with the overall economy itself.
There are now many moves afoot on the world stage to counter the Trump tariffs. American exports are sure to be bitten hard by foreign imposed tariffs in retaliation for those President Trump is putting in place, contrary to the advice of Gary Cohn and others, including many of Trump’s supporters both within and outside the Congress.
Let’s hope he knows what he’s doing.
Well, anyway, it’s gotten Stormy Daniels and her alleged affair with Donald Trump, 10 years ago, off the front pages and into the back ones of world newspapers.
For a little while, at least.
R. L. Schreadley is a former Post and Courier executive editor.