President Trump's tariffs went out to the world with blinking lights that essentially say: “Don't like this? Call Trump.”
His closest economic advisers and surrogates keep telling the public not to fear a trade war. They say this is Trump being Trump: He is making headlines with the tariffs in an effort to achieve his real goal of renegotiating trade deals with many countries. On Thursday, Trump himself admitted that's pretty much his plan.
“Many countries are calling to negotiate better trade deals because they don't want to have to pay the steel and aluminum tariffs,” Trump said as he signed an order to impose new tariffs on China.
No one knows whether his tactics will succeed or backfire. Trump is blowing up the usual process of bringing trade disputes to the World Trade Organization that has been in place since 1995. Instead, he's claiming the authority to put punitive measures on whatever countries and products he wants. He gets to decide the winners and losers. It all looks a lot like his days on the TV show “The Apprentice”: Just replace “You're fired!” with “You're tariff'd!”
It is a risky move. Even Trump's own Cabinet members admit that publicly, although they argue after years of quiet, civilized talks between the United States and China under Presidents George W. Bush and Barack Obama, it's time for aggressive action, especially over Chinese theft of U.S. intellectual property.
Adam Posen, head of the Peterson Institute for International Economics, warns this could turn out to be the economic equivalent of “Trump's Afghanistan,” a costly mistake that damages the economy and hamstrings America's future by souring relations with the rest of the world. It took the Chinese only a few hours to retaliate by announcing countertariffs. There's a plausible scenario where Trump fires off an angry tweet to pile on more tariffs, and the situation escalates quickly. The biggest losers in a trade war are likely to be farmers in Trump-supporting states.
“My biggest concern is that both sides believe they have the upper hand” in a trade fight, said Evan Medeiros, who served as the senior director for Asian affairs on Obama's National Security Council. “China can sustain pain much longer than the U.S. can, and it has the ability to harass numerous American companies operating in China.”
Trump has famously said he thinks he can win a trade war, but history shows that the last time the United States got into a big one — in the 1930s — it caused a bad economic situation to get worse and other countries to form trading blocs without the United States. Even smaller-scale trade actions like Obama's tariffs on tires or Bush's on steel yielded more job losses than gains, studies have found.
Wall Street had an ugly day Thursday, nose-diving more than 700 points after Trump signed the China tariffs. Investors may have been particularly skittish after Trump looked into the camera during the signing and told the world, “This is the first of many.”
Foreign leaders and business executives don't know how to read Trump's unpredictability on trade. For now, most are begging him to give them a break. He has signaled an openness to exempting even more countries from the steel and aluminum tariffs, and his administration has yet to announce which Chinese imports will face tariffs (or how high the taxes will be), unleashing a fresh lobbying push.
“It has the feeling of being chaotic ... because there is no clear policy,” said a partner at a Washington law firm that's working with many clients seeking exemptions from the tariffs. The lawyer spoke on the condition of anonymity to speak freely about what's going on. “I spent most of the day on the phone with anxious clients.”
U.S. Trade Representative Robert E. Lighthizer told Congress this week that while he is technically America's top trade negotiator, the tariff decisions — and who's in and out of them — ultimately belong to Trump.
“The final criteria is that the president makes that judgment,” Lighthizer said.
Trump thrives on keeping people guessing, and right now, even some of his top staff members aren't sure what will happen on trade. It's high drama that has an unusually large influence on Wall Street and potential corporate decision-making.
But Trump's team is right that what he has done so far — about $100 billion in tariffs on steel, solar panels, aluminum and China, according to Goldman Sachs estimates — is modest. It's a trade “spat,” not a trade war, and most economists agree it's unlikely to do much, if any, damage to the $19.4 trillion U.S. economy.
Certain towns could feel the pain as the industries there are affected the most, but so far, Trump's instincts have been to make a big tariff announcement and then scale it back dramatically.
Just look at the steel and aluminum tariffs. They started as tariffs on the entire world. But shortly thereafter, Canada and Mexico were excluded from the tariffs, even though Canada is the largest country sending metals to the United States.
On Thursday evening, just before the tariffs on steel and aluminum took effect, the White House took even more countries off the list: Australia, Argentina, South Korea, Brazil and the European Union are all exempt from the metals tariffs as well, at least until May 1. It sets up yet another dramatic deadline.
For now, the result is 4 of the top 5 countries the United States imports steel from are not be subject to the tariffs (only Russia would be affected).
Trump has gone further than most business leaders and Republicans in Congress thought he would on trade. But he has also shown a lot of willingness to make a big announcement and then quickly scale back how bad the bite is.
What he really seems to want is more made-for-TV moments where he can stand in front of the camera with a world leader or business executive and take credit for something changing because of him. Trump is already spinning his decision to exempt Canada as the result of his team getting concessions from Canada, something that's not clear has happened.
Trump will probably be able to spin the tariffs as a win — for him. Whether there are American corporate or job casualties along the way remains to be seen.
“Negative fallout has been limited thus far, consistent with the view that the president's belligerence is merely a starting point for negotiation,” said economist Jim O'Sullivan of High Frequency Economics.