Economic nationalism and the decline of US influence

Trump is turning the world upside down, and his enablers are complicit in letting it happen despite the adverse consequences that are increasingly apparent.

There was a time when the advantages of international trade were largely understood to be overriding. As a rule, parties who freely elect to enter into trading arrangements improve their lots. Each is better off having traded than not. Otherwise, why would they? At the same time, the increased competition that comes with any effort to increase foreign trade might be beneficial or adverse, depending on the circumstances. To the extent that expanding free trade offers our exporters the opportunity to expand their market share, that’s good; but when greater competition from foreign suppliers limits the market share of US producers, that’s bad. Clearly while sold as serving the greater good, expanding foreign trade invariably creates winners and losers.

As a country steeped in the capitalistic ethic, we’ve long held to the view that free and fair trade serves the broader interests of not only the US, but the world at large. Beyond the pure economic aspect of allowing greater access to more and cheaper goods, expanding trade has generally been understood to create useful dependencies that would deter conflicts like wars that had the potential of disrupting those beneficial economic relations. That was then. How yesterday! That was before Trump set the world on fire by insisting on imposing a new world order with regard to international trade, dramatically ramping up tariffs virtually across the board to allies and adversaries, alike.

Too much ink has already been spilled bemoaning the fact that higher tariffs raise costs for American businesses and consumers who source their purchases from abroad. That’s just the immediate effect, however. In the longer run, theory tells us that the higher cost of these foreign goods should be expected to shrink the volume of trade in the affected areas. Inevitably those foreign suppliers whose products are subject to tariffs will see their sales shrink and their incomes fall, thereby leading to a feedback effect that will inhibit their capacity to buy from US suppliers.

Beyond that, it’s more than reasonable to expect foreign businesses that trade with the US to react to Trump’s tariff measures by seeking to shift at least some portion of their business to other, non-US counterparties. Beyond the purely economic effects, from a geopolitical perspective, US prestige and authority are clearly compromised by the imposition of these tariffs. To expect otherwise would be delusional.

Based on a recent report in the NY Times by Agnes Chang and Daisuke Wakabayashi, it appears that the theoretical expectations laid out above are being realized. But it’s worse than that. The thrust of that article is that while we’ve been shooting ourselves in the foot, China has been exploiting our stupidity and has successfully expanded its trading relationships with our disaffected counterparties. In short, while we’re isolating ourselves, China is capitalizing on our retreat. Who would have guessed?

Trump’s economic advisors should have – and so should have the Republican leadership in Congress. These developments were not hard to foresee. That these stewards of our economy have chosen first to ignore basic economic logic and then actively turned a blind eye to the consequences of their feckless devotion to their dear leader is reflective of the dire straits that we’re in in terms of the people we’ve entrusted to run our economy. It’s not merely a policy failure; it’s a failure of competency and courage.

I suppose we can cross our collective fingers and hope that the Supreme Court rules that the imposition of these tariffs was illegal based on the false claim of an “emergency situation,” but even if they do that, I’d expect Trump and his enablers to do whatever they can to subvert such a ruling or otherwise act to delay its implementation. In the end, the courts can only do so much. It’s really up to Congress to reassert its authority and constrain the ill-considered and destructive tendencies of an economically illiterate despot.