Has Anyone Ever Won A Trade War?

This morning the NY Times reported that Señor Trumpanzee seems somehow consoled that in a trade war the Chinese will lose more than we will. His "threat to impose tariffs on almost every Chinese product that comes into the United States intensified the possibility of a damaging trade war, sending stock markets tumbling on Tuesday and drawing a rebuke from retailers, tech companies and manufacturers" He and those around him "remained unmoved by those concerns, with a top trade adviser, Peter Navarro, insisting that China has more to lose from a trade fight than the United States. He also declared that Mr. Trump would not allow Beijing to simply buy its way out of an economic dispute by promising to import more American goods."

For whatever reason-- personal greed? stupidity?-- Señor T. threatened an all-out trade war against China on Monday. His latest is to babble more bullshit about levying tariffs on everything China exports to the U.S. "unless," reported the Washington Post "Beijing agrees to a host of sweeping trade concessions, a dramatic escalation that would enlist American consumers in the brewing U.S.-China commercial conflict." (China is more keenly aware of how the demands of the two Opium Wars-- 1839-1843 and 1856-1860-- impinged on its sovereignty and sent the country into a catastrophic downward spiral that took them over a century to come out of.

In a statement, Trump said he had ordered his chief negotiator, U.S. Trade Representative Robert E. Lighthizer, to draw up a list of $200 billion in Chinese products that will be hit with tariffs of 10 percent if China refuses his demands to narrow the yawning U.S. trade deficit and change its industrial policies.

When Trump started his tirades about trade wars there was a lot of talk about where they had led historically-- depressions and shooting wars. Let's start by taking a look at the Financial Times' Gideon Rachman's look at how trade wars turn into real wars. "The foundations of America's relationship with China crumbled last week," he wrote. The key developments were a lurch by the US towards protectionism and a swing by China towards one-man rule. For the past 40 years, the world's two largest economies have both embraced globalization, based on understandings about how the other would behave. The Chinese assumed that the US would continue to support free trade. The Americans believed that economic liberalization in China would eventually lead to political liberalization. Both of these assumptions are now shattered. On Sunday, China's National People's Congress rubber-stamped a constitutional change that would allow President Xi Jinping to rule for life. Three days earlier, President Donald Trump announced tariffs on steel and aluminium and tweeted that 'trade wars are good and easy to win'. But Mr Trump's breezy confidence ignores the dangers involved in unleashing a trade war. Those risks are not simply economic: a trade war makes it more likely that, one day, the US and China could slide into a real war."

As the two countries slide towards confrontation over trade, territory and ideology, so the sense of grievance on both sides is likely to increase. The Chinese and American presidents are both nationalists who frequently stoke feelings of wounded national pride. Mr Trump has claimed the world is laughing at America and that China has raped the US. Mr Xi has promised to preside over a "great rejuvenation" of the Chinese people-- that will finally bury the "century of humiliation" that began in 1839, when the country was invaded and partially colonized.

The emergence of leaders such as Mr Trump and Mr Xi is a reflection of broader ideological shifts in both countries. Thirty years of stagnant or declining real wages for most American workers have comprehensively undermined the belief in globalization and free trade in the US. Mr Trump was the loudest protectionist voice in the 2016 presidential field. But even his opponent, Hillary Clinton, was forced to repudiate the Trans-Pacific Partnership free trade agreement that she had once promoted.

This new combination of a protectionist and nationalist America, and an assertive and nationalist China, is potentially explosive. But there are also aspects of Mr Trump's ideology that may make conflict less likely. Unlike all his recent predecessors, the US president has little interest in promoting democracy abroad. He is likely to be unconcerned by Mr Xi's move towards one-man rule. Indeed, he may even envy it.

So what about a reprise of the Great Depression? Will that be the retribution Americans get for allowing Trump into the White House? CNN pointed out that no matter what you do for a living, a trade war Trump seems determined to start should scare you. "In a trade war, countries impose tariffs and other barriers on imported products, often in retaliation for actions taken by a trading partner." Trump-- filled with the ignorance of the uneducated-- claimed a trade war would be easy to win. As with most things, he's wrong. Trade wars "slow down business activity around the globe by crimping international trade." Had Trump ever gotten an actual education-- he didn't-- he would have learned that "in a worst case scenario, trade wars can lead to a global depression. Protectionist trade polices are one of the primary factors economists cite for deepening the Great Depression. So if there's one thing that most economists agree upon, it's no one wins a trade war."

Here's how US businesses and consumers stand to lose if President Trump gets his wish for a trade war:

Prices will go up

This much is certain. In a trade war, US consumers and businesses will be left with the bill.

President Trump says he's planning to impose a 25% tariff on imported steel and a 10% tariff on imported aluminum. That means the price of cars, appliances, packaged food and everything else that uses steel or aluminum is bound to go up.

Even the aluminum industry's trade group admits the smelters remaining in this country cannot make enough additional aluminum to replace the supply coming from overseas. When the tariffs are put in place, imported products will continue to come in-- at higher prices.

Since foreign steel and aluminum prices will be higher, domestic producers are likely to raise their prices as well.

American businesses will lose sales

Yes, America buys more from other countries than it sells to its trading partners. But don't discount the amount of goods and services the United States does export-- $2.3 trillion worth.

A trade war by definition means that other countries are going to slap tariffs and restrictions on those US goods and services, making them more expensive, and less competitive-- if they're allowed into those countries at all.

And once an American business loses a contract to sell its products overseas, it can take a long time to win that business back. Their customers will find other, perhaps more dependable suppliers while the trade war is waged.

Many well-paying jobs are at risk in a trade war. In 2017, the United States exported $60 billion worth of auto parts, $56 billion of civilian aircraft, $52 billion of new cars and trucks, and $51 billion of pharmaceuticals.

That's only goods. The United States has been primarily a service economy for decades now. Today about five times as many jobs are in the service sector, such as finance, media, transportation and retail, than are in goods producing sectors, such as manufacturing and mining.

The good news is that the United States had a $243 billion services trade surplus.

American trading partners are also among its biggest lenders

The federal deficit is big and getting bigger. The Committee for a Responsible Federal Budget estimates the deficit could swell to $1 trillion by next year.

Wall Street worries that the rising amount of debt could drive up the interest rates on the government debt, since the Treasury Department will have to offer higher rates to borrow more money. That would increase the cost of borrowing for consumers and businesses, since many types of loans-- including mortgages-- track government bond rates.

One thing keeping rates in check so far is the demand for U.S. debt from overseas. America's foreign trading partners, including China, are among the largest buyers of that debt. It added $127 billion to its holdings last year and now owns more than $1 trillion in U.S. debt, making it the largest foreign holder of our debt.

The trade deficit that President Trump decries is one of the reasons for those holdings. It gives foreign countries a powerful incentive to buy that debt, since they have to do something with the dollars they get back on those sales.

If the trade gap shrinks, for whatever reason, China won't have as much incentive to buy U.S. debt, and interest rates could rise significantly.

We're not watching a TV show that will end for the season and start up again in a few months or next year. Trump is an existential danger to our country in the profoundest of ways-- and in ways that the next administration isn't going to wave a magic wand and fix. No one in their right mind or with a modicum of good sense thinks this is funny.