President Donald Trump’s recent moves of slapping tight tariffs against major economies could be described as laying the groundwork for a trade war.
This will not be the first time the US is engaging in a major global trade war aimed at solidifying and protecting the American economy.
One of the first executive orders signed by Donald Trump on January 20th was to rename Denali, a 6,000-meter-high mountain in Alaska, Mount McKinley, the name it was originally given before Barack Obama changed it.
Mount McKinley is a tribute to President William McKinley, who introduced tariffs of up to 50% in the late 19th century.
During his inaugural address, the former real estate magnate paid tribute to the “great president” who made the United States “very rich through tariffs.”
McKinley’s biographers don’t contradict this factual assertion, but they point out that things were a little different on the economic front in the late 19th century than they are today.
At the time, the U.S. government ran a budget surplus rather than a huge debt, relied on a closed economy without many imports, and cultivated a strong expansionist spirit.
Not driven by these tariffs, but thanks to technological advances—electricity, telecommunications, railroads—and the massive influx of immigrants.
McKinley’s immigration policy is nothing like that advocated by the current president.
“A very different time”
“A very different time,” says Peter Vanden Houte, chief economist at ING.
“Tariffs are a problem today because of globalization. Take the iPhone, for example: I think the parts come from more than ten different countries. This device literally goes around the world. The components come from several corners of the globe and end up being assembled in China. This makes things much more complex.”
“I think this is why Canada and Mexico are now off the hook, whereas previously there were major threats of tariffs against these countries. These tariffs would increase the prices of cars—which already cross the border several times as parts before arriving in showrooms in the United States—by an average of U$9,000 each.”
So, is Donald Trump going down the wrong path by following a path that’s nearly a century and a half old? “Not necessarily,” the expert counters.
“He has a number of advisors who, in my opinion, aren’t completely moronic. Who constitutes Trump’s constituency? It’s not Silicon Valley, but it’s working-class people in states where there used to be a lot of manufacturing. Lower-middle-class people who used to enjoy good wages, but now have to contend with a less favorable situation. Overall, the share of manufacturing in the economies of Western countries is declining. This is normal in itself, because manufacturing often relocates to low-wage countries and the service sector is gaining importance in these industrialized countries. But this is not of great interest to Trump’s voters.”
Which brings us to the term “geoeconomics,” which more and more economists are attaching to Trump: protectionism that serves to make it clear who rules the world.
The idea is that trade wars are counterproductive because they harm the economies of the countries involved, but the damage is greater in countries that export more than they import. And since China is now “the world’s factory,” Trump knows that his very high tariffs will harm that country.
“The fact is that the United States imports more goods than it exports. In that sense, the rest of the world is in a weak position. Therefore, this could be a strategic arena for the United States to achieve other results.
In the case of Mexico, it is very clear that the threat of tariffs was used to put a knife to its throat so that it would take back its migrants and stop the drug supply to the United States. For the rest of the world, it is not clear exactly what Trump wants to achieve, but it is important to keep in mind that he will try to make deals again in the coming weeks.”
