A Harley Davidson sign is displayed in a window at the New York store

Trump Undermines Himself on Trade

Jun 29, 2018 Simon Johnson

America's president seems utterly convinced that a trade war would be good for the US (and presumably for him politically). But his behavior on trade may quickly also become counterproductive, for three reasons.

WASHINGTON, DC – US President Donald Trump recently launched a tirade against Harley-Davidson, the iconic American manufacturer of motorcycles. The cause of his outburst – accompanied by threats to impose taxes “like never before” on the company – was the news that Harley plans to invest in new manufacturing operations outside of the United States.

The company’s reasoning is straightforward and compelling. Trump has threatened to raise tariffs on imports from Europe, and some of those higher duties are already in place. The Europeans, in response, are imposing higher tariffs on imports from the US, such as motorcycles (as well as bourbon, orange juice, and playing cards). Harley-Davidson would like to avoid those extra European taxes – and it can do that by locating some of its production in places not subject to such high European tariffs.

Trump’s anger is thus misplaced and unfair: he forced the company’s hand. But his behavior on trade may quickly also become counterproductive, for three reasons.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Already have an account? Log in

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads, book reviews, and insider interviews; Big Picture topical collections; Say More contributor interviews; Opinion Has It podcast features; The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

Simon Johnson

Writing for PS since 2007
141 Commentaries

Simon Johnson, a former chief economist at the International Monetary Fund, is a professor at MIT's Sloan School of Management and a co-chair of the COVID-19 Policy Alliance. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream and the co-author, with James Kwak, of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown.

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 13 Comments on this article

Elizabeth Pula Jul 8, 2018

Isn't the real message the fact that the only thing Trump's trade war is good for is good for him politically? No probably about it. Now, the rest of the story is the fact that increase of tariffs is just another substantial disguised tax on majority of consumers in the US, to their detriment and financial loss, adding to additional inflationary trends within the US economy.
A new reply to this comment has been posted.
fgk2700 Jul 4, 2018

AGAIN you don't understand the American thought process. In this "trade war" as you put it the USA can only win. Why? 3 reasons:
1. We already pay higher tariff's now. If these other countries lower their tariff's USA wins
2. If the other countries don't back down and stop buying food the excess will hit the USA market and lower the USA inflation which is over 2% so it keeps the USA economy from "overheating"
3. Without food these other countries will have problems feeding their "masses" what they have become accustomed to and it will create unrest in their countries and problems with their own political leaders
4. Any "excess" food will be purchased by the US Federal Government and "given" out to it's poor or sent to 3rd world nations as aid.

The USA cannot lose in this trade war - the people we trade with WILL capitulate and if they don't who cares, the USA can and will go it alone. The world hated Ronald Regan and now they hate Trump, meanwhile the USA economic engine keeps getting stronger.
A new reply to this comment has been posted.
fgk2700 Jul 4, 2018

Once again not true. The tariff's placed by the EU and China weren't against companies praised by Trump but in states that produce products that VOTED for Trump. The retaliatory tariff's weren't meant to be economic as the previous commentator realized but to be punitive and petty. THAT is how you get to Trump, try to separate him from his voters. Unfortunately for THEM it will only make those voters grow into more feverant supporters - the world still doesn't get the USA mindset.
A new reply to this comment has been posted.
fgk2700 Jul 4, 2018

When the tax cuts were enacted this year a majority of those tax cuts were to help companies with their corporate taxes. Those tax cuts should have offset any increases in costs that Harley would have seen due to increases in steel and aluminum costs. So when the company up and "runs" yeah Trump has a right to get angry.
A new reply to this comment has been posted.
D. V. Gendre Jul 3, 2018

Experienced and tough people? At least in the EU I can't see them (maybe in China)! Tariffs on orange juice, peanut butter and motorcycles? That's a joke!
Tough people would have imposed tariffs on aerospace, corn, cotton, oil and gasoline, machines and electronics.
A new reply to this comment has been posted.
Douglas Leyendecker Jul 2, 2018

There's no trade war. There's just negotiating. And since America has a huge trade deficit they need us more than we need them.
- Paul Ross Jul 2, 2018
  
  Thank you for the Fox News take. There is in fact an entire world outside the USA that could buy up their surplus production.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
Stan Sorscher Jul 2, 2018

Ummm. Let's say steel costs $600 per ton (more or less). Than means each Harley contains 12 tons of steel (.25 X 12 X $600 equals approximately $2000 additional cost per bike). Maybe the problem is that Harleys weigh too much, rather than costing too much. (;-)
A new reply to this comment has been posted.
Barry Rosenfeld Jul 1, 2018

It is so typical of mainstream, establishment economists to make light of examples of individual harm cause by the so-called free trade regime as they airily referred to the overall benefits. Now, when the situation is reversed, they start to cherry pick a for examples of individual hardship. Easily forgotten by academics (usually tenure protected) are the thousands of firms driven out of production and the millions of workers who have lost their jobs and incomes due to China's Mercantilism.

The results of one-sided free trade as also led to the collapse of communities and of the taxes that supported schools, hospitals and local community services. Somehow these dead-weight losses are not factored into the economists's calculus of gains and losses. Is there any wonder why "the establishment" is under such attack? It is an example of the "emperor's new clothes." There is "nothing there" to justify the high regard in which the experts hold themselves.
- Paul Ross Jul 2, 2018
  
  It is so anti-thought Fox Newsy to miss that the Trade Deficit is caused by a current account imbalance, that trade wars will never cure.
  
  If you spend more than you take in and save, you have a trade deficit to make up the balance. Simple math. No getting around it. Who the imbalance goes to is less important, than the deficit.
  
  So slashing taxes and increasing spending will make the trade deficit bigger. Nothing Trump or Fox News says can change that. That is accounting at work.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
Alex Aslanidis Jul 1, 2018

The ones unwilling to listen to reason are liberal economists. Trade deficits are harmful to the economy. They produce bubbles and increase external debt. They also skew the economy towards questionable services (like finance) and against manufacturing. Also, should problems arise (say, a balance of payments crisis), it's going to be difficult to recalibrate the economy towards manufacturing and against these questionable services.

Now, there are two ways to reduce trade-deficits. One way is through recession: through restrictive fiscal policy (like the Eurozone does) and lack of social safety nets (like China does). The other, and preferable, way is through tariffs. Despite what status-quo economists claim, the ones that are going to lose the most through a trade-war are the surplus countries (like China and the Eurozone), which are going to find themselves unable to dump their excess production abroad, like they've been doing for some time now. Also, the companies that outsourced are going to have to get used to smaller profit margins, but that's how it is. The process that they've gotten used to (liberalization) has run it's course and is now harmful.
A new reply to this comment has been posted.
j. von Hettlingen Jun 30, 2018

Simon Johnson names three reasons why Trump’s trade war may quickly become “counterproductive.” Trade policy is inherently political and Trump’s approach is all about “realpolitik” – a game about “who can actually get away with what.”
First, Trump does not know how trade war works. He attacked Harley-Davidson for planning to move part of its manufacturing abroad. The bike builder seeks to move its activities to countries that are not affected by high tariffs. The company needs affordable steel to build bikes that can be sold at an affordable price in Europe. Harley-Davidson’s response is logical, even if it will shed jobs in the US, it has to protect its corporate interests. Trump stupidly assumes that “by helping business, he will help all Americans.”
Second, Trump – according to the author – has “tipped his hand.” World leaders like Xi Jinping and Emmanuel Macron had learned that flattering their way to Trump’s heart did not appease him, let alone change his policy. Trump received a lavish "state-visit-plus" red-carpet treatment in China last November, and he was so impressed by France’s Bastille Day parade, during his visit in Paris last July, that he also talked about having his own military parade in Washington.
Chinese and European leaders have discovered that the only way to counter Trump’s bullyism is to respond in kind. Trump has over-estimated his intimidation tactics and underestimated his counterparts: Both China and the EU “have substantial spending power and are run by experienced and tough people.” They target Trump’s Achilles heel, seeking to hurt companies and people, who are known to be personally close to him. Senate Majority Leader, Mitch McConnell is from Kentucky, which is being hit by the EU’s 25% tariff on bourbon. House Speaker, Paul Ryan is from Wisconsin, home to Harley-Davidson. The author says such practices would have been “unacceptable” a few years ago, but with Trump, forget about ethics.
Third, Trump seems ready to sacrifice America’s agriculture – a major exporter – just for the sake of saving the steel and aluminium industry. Farmers are bracing themselves as their trade partners threaten to retaliate. Agricultural exports, which amounted to $133 bn in 2017, are the first to feel the hit of a trade war. Farmers harvest their wheat crop this time of year. Around 60m tonnes are gathered annually and almost half finds itself to overseas markets. Where this crop will be sold is a question that worries them. Canada and Mexico import about $39bn worth, China’s share is $20bn and the EU around $12bn. All those countries have threatened to retaliate over steel and aluminium tariffs.
Trump was elected, in part, on a promise to put America’s interests first and crack down on what he sees as a world trade system rigged against the US. Many rural areas are “bastions of support for Trump and the Republicans.” American farmers are staunch supporters of the Trans-Pacific Partnership deal and they have recently put pressure on Trump to rejoin the TPP, which he gutted soon after he took office in 2017. The author says, targeting the export of food and crops is a “good strategy.”
It remains to be seen whether these threats will be defused, or they begin to pose a real danger to the global economy. But given “Trump’s love of brinkmanship and confrontation, it is reasonable to expect further escalation.” According to the author, “no one except Trump wants a trade war – so these tariffs could easily and quickly be reduced.” However, Trump “seems utterly convinced that a trade war would be good for the US (and presumably for him politically).” Worse, he is “apparently unwilling to listen to reason.” There is no obvious end game. What can China, the EU and Canada offer that would satisfy him or help end US trade deficits?
A new reply to this comment has been posted.
P. Kamath Jun 29, 2018

No pun intended of course! With meek and weak knee'd Republican members in the Congress and Senate, I expect Trump to play few trump cards ftom his hip pockets. A real full trade war never occurred in history. So let is watch tge brink-manship😊
A new reply to this comment has been posted.

https://prosyn.org/Qhx1TQN

Trump Undermines Himself on Trade

To continue reading, subscribe now.

Support High-Quality Commentary

New Comment

Email this piece to a friend

Contact us

Log in/Register

Trump Undermines Himself on Trade

To continue reading, subscribe now.

Support High-Quality Commentary

Edit Newsletter Preferences

Set up Notification