One of the difficulties involved in writing about policy in the era of President Donald Trump of the United States is that it can be very hard to get a handle on what the specific objectives of a particular policy are, or why that policy is being advanced.
On the morning after Liberation Day, that problem is very clear as it relates to the US’s strategy on trade tariffs.
Consider the official position on tariffs. You or I might disagree fundamentally with the economic theory behind implementing them, but there is an identifiable case to be made:
The United States wishes to protect and develop its own manufacturing economy. To do so, it must protect American workers from unfair trade practices overseas, by applying tariffs to imported goods which increase the price of those goods relative to domestically produced US goods. This, per the “tariffs are good” theory, will stimulate American manufacturing and jobs by making it advantageous for companies to base their production and supply chains in the United States. Tariffs are good in and of themselves, per this theory.
However, there is also a competing theory: This is the “tariffs are a negotiating tactic” theory which says that Donald Trump is applying the tariffs to force other countries to drop their own tariffs on American goods. Under this theory, the US is applying 25% tariffs on Canada for example to force Canada to drop all import tariffs on American agricultural produce. If this is accomplished, then the United States will drop its tariffs, and President Trump will claim victory, even though the end result will be more free trade.
Or for example, when Trump dropped proposed tariffs on Mexico earlier this year, it was not in return for any concessions on trade at all: Mexico simply re-stated their previous agreement to deploy a single infantry division of 10,000 soldiers to police the US-Mexico border. That was hailed by the White House (and many of its supporters) as a classic example of the “negotiating tactic” approach to tariffs.
But you might notice that these theories are in contradiction: Does the United States want less free trade, because free trade is bad – as is clearly advanced by argument one? Or does the United States want more free trade because tariffs on American goods overseas are bad – as is clearly advanced by argument two? Or does it want no action on trade at all, and are the tariffs a negotiating tactic to secure some other outcome, like increased NATO spending or Mexican action at the US border?
The standard answer when you ask this question is some hybrid of the two: That the United States wants fair trade. But what is the definition of fair trade? If you listen to President Trump, the answer to that question appears only to be measured by a particular country’s trade balance with the United States. That is to say, trade between Ireland and the US is a problem for him because Ireland is exporting more to the US than it is importing from the US. Tariffs on Pharma products for example are supposed to address this – yet they are simultaneously up for negotiation, which makes no sense.
So here is the question that the world’s policymakers are asking themselves: What exactly does he want?
If he simply wants the US to “win” at trade, then clearly there can be no negotiation, because free trade will almost always mean that the USA – a richer country than 90% of those with whom it trades – will buy more than it sells. Unless he makes the United States dramatically poorer – and tariffs are a good start – then Americans will always be able to buy more from Cambodia, for example, than Cambodians can afford to buy from America. That is what a trade deficit is.
What we can see – and measure – in real time are the impacts of the policy decisions that have been announced: Market chaos, economic uncertainty, and economic stress for tens of millions of families both in the United States and worldwide. Massive disruption to the global trade system. And yet, very often, those who advocate for this very policy are not clear – as I would argue they have an obligation to be – about what precisely they hope to achieve from it.
There are the basic questions here:
It is all, you will note, very confused. Which is precisely why the markets have reacted to it as they have.
It is also, I fear, why so many advocates of the policy retreat from setting out its clear objectives, and instead indulge in some version of “trust the plan”.
Trusting the plan is one thing – but in a Democracy, it is usually incumbent on Governments to tell us exactly what the plan is. This morning, we are no wiser.