Opening Salvos in President Trump’s Trade War
President Trump seems intent on starting a trade war. On Monday, he told business executives at the White House that he would punish companies that shut factories in the United States and moved jobs overseas by imposing a “very major” border tax. Such a tax would probably be illegal under American law and would definitely violate treaties with other countries.
Mr. Trump’s remarks came on the same day that he withdrew from the Trans-Pacific Partnership, a trade agreement the Obama administration had negotiated with 11 countries, including Australia, Japan and Vietnam, but Congress never ratified. He also pledged to renegotiate the North American Free Trade Agreement with Canada and Mexico. In this flurry of activity, he seemed oblivious to how his actions might affect the economy and millions of Americans who stand to lose their jobs if he tears up trade agreements and causes other countries to retaliate by penalizing American goods and services.
Foreign countries would almost certainly respond if Mr. Trump tried to impose a border tax. They would file cases against the United States at the World Trade Organization, which has the power to authorize retaliatory tariffs on American products, potentially hurting exporters like Boeing, General Electric and farmers in the Midwest. The leaders of some countries, including China, which Mr. Trump frequently criticizes, could create a similar tax to force American manufacturers to set up more factories in those countries. Such tit-for-tat would inevitably harm American workers who make goods for export as well as businesses that rely on raw materials and parts from other countries.
One of Mr. Trump’s big complaints about trade deals is that other countries are cheating the United States. His charges don’t stand up to scrutiny. For example, much of the United States’ trade deficit with Canada and Mexico is a result of imports of oil and gas. When those basic raw materials are excluded, American trade with those countries has been pretty balanced in recent years, according to a 2015 Congressional Research Service report. The United States also had trade surpluses with both countries in services, which include things like insurance and Hollywood movies. If Mr. Trump seeks to renegotiate Nafta and place tougher conditions on factories in Canada and Mexico, those countries might try to put restrictions on American service exports, which amounted to $56.4 billion for Canada and $31.5 billion for Mexico in 2015.
In his inaugural speech, Mr. Trump railed against trade: “The wealth of our middle class has been ripped from their homes and then redistributed across the world.” But the protectionism he champions assumes trade provides no benefits. In fact, it brings Americans cheaper goods and drives economic growth and innovation.
The New York Times