Trade war shows reality of ‘America First’ in action
In a trade war, as in a real one, people are wounded by friendly fire from their side. Consider some casualties in Donald Trump’s “easy to win” — his promise –trade war. Begin with the company whose green machines bear the name of the blacksmith who, in the 1830s in Grand Detour, Illinois, invented a self-scouring plow that could turn the Midwest’s heavy black topsoil.
Is the John Deere corporation “tired of winning,” as Trump promised that all Americans soon would be? Not exactly. The Wall Street Journal reports that U.S. farmers are purchasing fewer farm machines — Deere’s profits from this business are down 24% from a year ago — partly because farmers’ incomes have suffered as a result of the tit-for-tat trade spat that Trump started with China, which has included China canceling the purchase of almost 500,000 metric tons of soybeans. Some good news for John Deere might be ominous news for U.S. farmers: Equipment sales to Brazil and Argentina are up, perhaps partly because China has increased purchases from those nations’ farmers, who are American farmers’ competitors.
Nowadays, even sensible government actions injure some farmers. Many of them have come to depend on government’s misguided mandate regarding ethanol in gasoline, and the Journal reports that 31 refineries have been given ethanol waivers from the Environmental Protection Agency. The Iowa Corn Growers Association says the exemptions could eliminate “nearly one billion bushels of corn demand.” Whether ethanol would have achieved sacramental status in Washington if Iowa did not have presidential caucuses is a subject for another day.
Home Depot, the world’s largest home improvement retailer (more than 2,000 stores in North America), partly blames the trade war for its lowered growth expectations. The tariffs, which The Financial Times accurately refers to as “import taxes,” will, according to a JPMorgan estimate, cost the average U.S. household “around $1,000 a year.” If so, this Trump tax increase — it is his alone — is more important to the average American than his (actually Congress’) tax cut.
The Financial Times recalls that “hundreds of U.S. companies and trade associations said in a joint communique in June that the proposed duties would cause the loss of two million jobs and reduce U.S. economic output by 1%.” The losses and reduction are related to the fact that, as Allan Golombek of the White House Writers Group notes, “Over 60% of U.S. imports are used by businesses in their products and production processes.” Hence Trump’s tariffs make U.S. goods more expensive, thereby dampening U.S. consumer activity. And exacerbating trade deficits, which do not matter other than as irritants to Trump, who thinks they indicate foreigners taking advantage of Americans by selling them things they want.
Uncertainties infused into the global economy by the trade war between the world’s two largest national economies probably have helped to produce a global slowdown and fears, perhaps somewhat self-fulfilling, of an approaching recession. The fourth-largest economy, that of heavily export-dependent Germany, is already shrinking. There, as The Economist reports, “interest rates are negative all the way from overnight deposits to 30-year bonds. Investors who buy and hold bonds to maturity will make a guaranteed cash loss.”
This does not suggest economic health but might produce something pleasing to the president whose macroeconomic theory makes up in brevity what it lacks in nuance: “Low interest rates are good.” He is forever hectoring the Federal Reserve to lower rates, which it might again do if it sees a recession tiptoeing toward us. So, a recession would be an interestingly injurious carom — a win, of a perverse sort — from his trade war.
From May 1937 to June 1938, there occurred the “recession within [the] Depression,” America’s third-worst 20th-century contraction. About the causes of this, as about so many economic events, intelligent and informed people disagree. However, one theory is that capital went “on strike.” Rattled and exasperated by the New Dealers’ regulatory fidgets, investors flinched from economic activity. If so, this episode contains a warning for protectionists who seem oblivious.