Year in Review 2018: Trade Policy

Screen Shot 2019-01-06 at 1

2018 was the year in which President Trump began to implement his campaign promises of using tariffs to change America’s trade policy. The ostensible reason was to protect American jobs and industries. In so doing, the President jettisoned his party’s long-standing adherence to free-market principles. It appears that this is one of several changes that represent the beginnings of a political realignment that may well be global in nature.

The President imposed his first tariffs, on imported solar panels and washing machines, in January. On March 1, he announced the imposition of tariffs on imported steel and aluminum from most countries. The next day he expressed his philosophy on trade wars in a famous Tweet:

The trade wars had begun. The tariffs were extended to major trading partners like the European Union. Canada, China, and the EU announced retaliatory tariffs. The President seemed to have entered into a trade war with the EU as well as China, which included him excoriating and threatening Harley-Davidson for responding to these incentives by planning to move some production overseas.

An all-out trade war with the EU was only just averted after a last-minute meeting between the President and the European Commission President Jean-Claude Juncker on July 25. However, the meeting produced merely a truce rather than a peace treaty. Negotiations to remove the full range of tariffs have yet to commence.

It was around this time that the President declared that he wanted a world of zero tariffs and trade barriers, something his free-market allies commended him for, and yet by the end of the year the President was declaring that he was, above all, a “tariff man.”

It is in this tweet that we see the basis for the administration’s policy. The President views the money spent on imported goods as having been “raided” from America, as if imports were the equivalent of Viking looting.

Nothing could be farther from the truth. As my colleagues and I explained in the study “Traders of the Lost Ark,” imports actually add value to the nation, allowing America to concentrate on doing the things it is best at rather than worrying about how to grow bananas in East Atlanta (to pick a random example).

We also explain how the administration’s policies are in many ways a reversion to type for America. Historically, America has been a protectionist nation, dating back to Alexander Hamilton, and including the horrifically damaging Smoot-Hawley tariffs that extended the Great Depression (and which were only ameliorated when the rest of the developed world was devastated by World War II).

However, when taken alongside such policies as an increased interest in using antitrust as a political weapon, hostility to immigration, and a marked reluctance to shrink the size of the state, the hostility to free trade could be seen as part of a great political realignment that includes the rejection of free-market policy that has been dominant among conservatives since the 1980s.

As Stephen Davies of the Institute of Economic Affairs explains in this month’s Cato Unbound, many “conservative” parties around the world are moving towards what he terms “national collectivism”:

They are nationalist and patriotic, anti-cosmopolitan and anti-globalism; they are economic nationalists and support an active economic role for government and a large and generous but strictly national welfare state; they are cultural traditionalists and (often) social conservatives, and they support traditional ideas of identity, particularly masculinity and femininity.

As Davies points out, free-market conservatives (“national liberals”) have long been in alliance with this faction, but that alliance appears to be on increasingly shaky ground. If Davies is correct, then the prospects for a reversal in trade policy in 2019 are slim.

The one hope for a reversal is that Americans who support the President realize that they are being hurt by his trade policies. As Herb Stein famously said, “If something cannot go on forever, it will stop.” However, as Adam Smith, father of free trade policies, also noted, “There is a great deal of ruin in a nation.” Americans are likely to suffer a great deal before this irresponsible trade policy stops.

Previous posts in the Year in Review 2018 series: