The dangerous protectionism of Donald Trump

He said he would do it. Donald Trump has unleashed a trade war. He is a self-confessed mercantilist.

He said he would do it. Donald Trump has unleashed a trade war. He is a self-confessed mercantilist. This is just the second skirmish. The first one was the insensitive withdrawal from the Trans-Pacific Partnership. This time Trump imposed high tariffs on the import of steel (25%) and aluminum (10%). Then he boasted that he would win the conflict. And quite probably he is right: he will win. Europe depends more on exports than the United States. However, Europe is an ally and it makes no sense to treat it that way. It will be a Pyrrhic victory. It will cause retaliations that we all will end up paying.

Herbert Hoover, a Republican president who before moving to the White House was a great public official, also won the trade war caused by the Smoot-Hawley law of 1930. That year, fulfilling a campaign promise made in 1928 –this denies the thesis that it was a consequence of the Stock Market Crash of 1929, that terrible crisis that began on a black Thursday and endured a whole decade–, the United States raised tariffs on thousands of agricultural products imported from abroad.

It was a huge mess. That protectionist victory exacerbated European nationalism, reduced international commercial transactions by 65%, aggravated the Great Depression, contributed to the victory of Franklin Delano Roosevelt (the Democrats were in power for 20 consecutive years, from 1933 to 1953), and sped up the horrendous outcome of World War II with its 60 million corpses, the annihilation of European Jewry (who were the greatest concentration of talent in history), and half planet turned into rubble by the merciless bombings from all quarters.

Both Trump and Hoover made a mistake that had the same origin–to misunderstand the meaning of trade balance. Or use it demagogically to please political clients and harm the rest. Or understand it very badly, as the mercantilists have always done, constantly watching how much we buy from, or sell to, other countries, without understanding that the resulting data often does not have a great influence in the final balance.

It is true, for instance, that China sells much more to the United States than vice versa. So what? Americans enjoy much cheaper products and invest the price difference in new companies, in salaries, in benefits for society. In addition, the Chinese use a part of their profits to acquire US treasury bonds, which would be something like exchanging tangible objects that have cost millions of hours of work, for papers for which they receive a modest interest, but they are backed by a great country where institutions work properly and payment promises are religiously fulfilled.

Ninety percent of global transactions are made in dollars. Seventy percent of the world’s countries keep their reserves in dollars or in US treasury bonds. What else does Trump want? During the 42 consecutive years in which the United States’ trade balance has been negative, the national economy has grown exponentially, has achieved almost full employment, and has grown to 18 trillion dollars, but that has been possible, among other reasons, thanks to a trade deficit of 800 billion dollars (just over 4% of GDP) that cannot be considered a loss and that return to the nation’s coffers in different ways.

In contrast, between 2001 and today, Venezuela has experienced a very positive trade balance, which served to enrich Ali Baba and his 40,000 thieves. However, Venezuela is not the only country that exports more than it imports: Angola, Brazil, the Democratic Republic of Congo, Equatorial Guinea or Mongolia also achieve it, as happened almost every year in pre-revolutionary Cuba, although this indicator didn’t mean a big deal.

It seemed that the conflict between free traders and mercantilists had been solved since Adam Smith published his Inquiry into the Nature and Causes of the Wealth of Nations in 1776, but it is not true. The crude judgment of mercantilists revives every now and then and does great harm to society, impoverishes nations and, even unintentionally, fosters discord and war. That’s why 107 Republican congressmen wrote a letter to Donald Trump begging him not to impose tariffs on steel and aluminum. They realized that fighting that war has no sense at all, let alone winning it.

Published in Spanish by El Blog de Montaner on Sunday March 11th, 2018

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