Paul Krugman: Oh, What a Stupid Trade War

So, the trade war is on. And what a stupid trade war it is.

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The official – and legal – justification for the steel and aluminum tariffs is national security. That’s an obviously fraudulent rationale, given that the main direct victims are democratic allies. But Trump and co. presumably don’t care about telling lies with regard to economic policy, since that’s what they do about everything. They would see it as all fair game if the policy delivered job gains Trump could trumpet. Will it?

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And the answer, almost surely, is that this trade war will actually be a job-killer, not a job-creator, for two reasons.

First, Trump is putting tariffs on intermediate goods – goods that are used as inputs into the production of other things, some of which themselves have to compete on world markets. Most obviously, cars and other durable manufactured goods will become more expensive to produce, which means that we’ll sell less of them; and whatever gains there are in primary metals employment will be offset by job losses in downstream industries.

Playing with the numbers, it seems highly likely that even this direct effect is a net negative for employment.

Second, other countries will retaliate against U.S. exports, costing jobs in everything from motorcycles to sausages.

In some ways this situation reminds me of George W. Bush’s steel tariffs, which were motivated in part by hubris: the Bush administration thought of America as the world’s unchallengeable superpower, which we were in military terms; they failed to recognize that we were by no means equally dominant in economics and trade, and had a lot to lose from trade conflict. They quickly got schooled by an angry European Union, and backed down.

https://www.nytimes.com/2018/05/31/opinion/oh-what-a-stupid-trade-war-very-slightly-wonkish.html