The S&P 500 closed today down 0.71%. Analysts blame the trade wars, which accelerated while President Trump was in China. I worry. Academic economists argue that protectionism contributed to the Great Depression.
President Trump says he raised tariffs to punish America’s trading partners (including China, Canada, Germany, and the United Kingdom) for “trade abuse.” He is doing what he promised. In a notable speech at a metal recycling plant in June 2016, Trump pointed to “massive,” “unfair” tariffs and trade barriers creating America’s large and persistent trade deficit, which was $800 billion in goods in 2017 -- proof to him that other nations and the World Trade Organization (WTO) are taking advantage of the U.S. Ironically, after World War II, we set up the trading system that led to the WTO to prevent mutually destructive tit-for-tat or “beggar thy neighbor” spirals.
The president claims tariffs help employers and workers hurt by trade. Is he right? Trade deals did concentrate losses on certain workers, employers, and regions, while the gains of lower prices were dispersed. However, policy tools don’t include time machines. We can't go back.