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President Trump’s declaration last week that he would impose a tariff of 25 per cent on American imports of steel and 10 per cent on aluminium angered and alarmed the country’s friends and trade partners as well as most senior Republicans in Congress. The Europeans began talking of retaliatory trade penalties, targeting American whiskey, jeans and motorcycles. This infuriated Mr Trump. If they did so, he tweeted at the weekend, he would immediately apply a tax on cars made in Europe. And if this set off a trade war, he added defiantly, so be it. “Trade wars are good, and easy to win.”
This way madness lies. Western prosperity is built on free trade. The world well knows the disastrous consequences of the 1930 Smoot-Hawley Tariff Act, which implemented US protectionist measures and triggered the Great Depression. Most of Mr Trump’s senior advisers, including Steven Mnuchin, the treasury secretary, and Gary Cohn, the White House economic adviser, have warned him that punitive tariffs would inevitably invite retaliation, which would be deeply damaging to swathes of the US economy.
The Republicans in Congress, traditionally libertarian free-traders, are equally alarmed. Nowadays they tend to ignore Mr Trump’s inflammatory tweets, knowing that he does not always follow through with legislative changes and often contradicts himself a few weeks later. But his stance on trade alarms them for two reasons. First, the promise to protect US heavy industry in the so-called rust belt was key to his winning over Michigan, Ohio and other key northern states that traditionally voted Democrat. Mr Trump is already looking to his re-election campaign for 2020, and knows that he must be seen to have kept faith with the workers threatened by foreign imports, especially given his campaign promises to protect and revive their industries. Second, trade is one of the areas in which the president is able to legislate by decree, without needing the approval of Congress. If he decides to impose new tariffs straightaway, there is little his own party can do to stop him.
It is not just a question of trade. Slapping retaliatory tariffs on partners and allies is like pulling at the threads of the western alliance; within months, the entire fabric will unravel. Other countries could penalise US banks and technology companies such as Amazon and Facebook. Trade agreements would break down and limits would be set on international finance. Already America’s neighbour and main trading partner, Canada, has denounced such measures as “unacceptable”, and Justin Trudeau, the prime minister, has promised to “defend Canadian industry”. A similar message, even if phrased more emolliently, might soon come from South Korea and Japan. China, the immediate target of Mr Trump’s campaign rhetoric, has said that it wants to defuse tensions but has left no doubt of the damage it could cause to the US economy if he sticks to his threat.
Mr Trump would be on stronger ground, at home and abroad, if he campaigned on bolstering American innovation instead of defending antiquated industries. Take cars, for example. Tesla has leapfrogged the competition in developing electric cars, and now leads the world. The administration should be doing all it can to promote such US products that will set global standards and regain US trading advantage. The country is not short of ideas or technological excellence.
The challenge for Mr Trump’s advisers is to disabuse him of a conviction, repeated in his tweets, that the US deficit is the result of “bad deals” made by earlier presidents. It is not. It is because consumers are drawn to foreign products if they are better or cheaper. The US must focus on producing cars as good as BMW or consumer goods as cheap as those mass-produced in China. Unless the US can match its competitors in quality or cost, its older industries will continue to decline.