Do trade wars really put America first?
President Trump has placed retaliatory tariffs on the U.S.’s closest allies. His justification for this policy is national security and the protection of America’s businesses. But history has shown us that trade wars don’t put America first.
From the campaign trail to the presidency, President Donald Trump has stated time and again that his administration's goal is to put America first. “The first duty of our government is to serve its citizens, many of whom have been forgotten," the president said on the subject of national security. “But they are not forgotten anymore. With every decision and every action, we are now putting America first."
To keep that promise, President Trump announced tariffs on several imports this year under the justification of national security. In January, the administration imposed tariffs on solar panels and washing machines. Then in March, Trump said he would foist heavy tariffs on steel and aluminum. American allies Canada, Mexico, and the EU were originally exempt, but on May 31, they too found themselves subject to the policy.
President Trump's stated goal for these actions is to protect American industries, which he believes have been unfairly treated by bad deals on the global market. “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," the President tweeted.
In a survey of the CNBC Global CFO Council, nearly two-thirds said the tariffs would negatively affect their company and 86.9 percent believed it would negatively affect the U.S. and Chinese economies, calling U.S. trade policy “the biggest risk their companies [face]."
"Let me be clear: These tariffs are totally unacceptable," Trudeau said. (Photo by Drew Angerer/Getty Images)
And as Canadian president Justin Trudeau told NBC's Meet the Press, “The idea that we are somehow a national security threat to the United States is, quite frankly, insulting and unacceptable," noting that the American-Canadian alliance is one of the most successful in the modern world.
Who's right? Do trade wars put America first or do they push the U.S. further back? History suggests the answer is the latter.
The trade war of the 1930s
At the start of the Great Depression, politicians were naturally in a protectionist mood, and Congress, led by Senator Reed Smoot and Representative Willis Hawley, spearheaded an effort to raise retaliatory tariffs that would protect American businesses from foreign markets.
Despite a petition signed by more than a thousand U.S. economists and countless critical editorials, President Hoover signed the Tariff Act of 1930 (commonly known as the Smoot-Willies Tariff) into law on March 3 of that year. The act increased American import duties on hundreds of goods with the costliest rates since the protective Tariff of Abominations (1828).
The results were as expected—if you were one of the petitioning economists. The United States saw a precipitous reduction in exports and imports, as other countries instituted retaliatory tariffs. Worldwide trade plunged from $4.9 billion in January 1930 to $1.8 billion by January 1933.
According to The Economist, the act “poison[ed] the emptying well of global trade" and stained foreign relations for years:
Smoot-Hawley did most harm by souring trade relations with other countries. The League of Nations, of which America was not a member, had talked of a 'tariff truce'; the Tariff Act helped to undermine that idea. By September 1929 the Hoover administration had already noted protests from 23 trading partners at the prospect of higher tariffs. But the threat of retaliation was ignored: America's tariffs were America's Business.
Sound familiar? The idea that tariffs are good for American businesses and that retaliation is a nonissue match up perfectly with Trump's rhetoric on his contemporary policy.
It is certainly a stretch to say that the Smoot-Willies Tariff caused the Great Depression, and the Great Depression is responsible for the myriad of difficulties in the 1930s. History, like the universe, goes by indirection. Straight lines need not apply.
However, it is not difficult to see how the economic isolationism that propelled the Tariff Act of 1930 would also take root alongside the era's political isolationism and collective narcissism, ideologies that harmed America and led it to exit the world stage when it was needed most.
A capitalist peace?
In contrast, the second half of the 20th century shows the value trade brings for all parties. In The Better Angels of Our Nature, Steven Pinker dedicates a chapter to what he terms “the Long Peace." Starting in the decades after World War II, this period saw a steep decline in wars fought between states. Between developed states, the practice is almost extinct.*
Again, history does not exist in a straight line, and Pinker argues that there are many reasons for the Long Peace, from the proliferation of democracy to a widespread adoption of humanist ideals. But one of the reasons he provides is that globalization and freer international trade correlate with peace.
Citing the work of Bruce Russett, John R. Oneal, among others, Pinker shows that countries depending on trade are less likely to militarize or solve disputes with displays of military force.
“[These data invite] a more expansive version of the theory of gentle commerce," Pinker writes in The Better Angels of Our Nature. “The pacifying effects of commerce in this broad sense appear to be even more robust than the pacifying effects of democracy. A democratic peace strongly kicks in only when both members of a pair of countries are democratic, but the effects of commerce are demonstrable when either member of the pair has a market economy [emphasis Pinker's]."
In short, an openness to a global economy has a pacifying effect on countries and their citizens, as it moves financial and political incentives away from war and toward cooperation.
Make trade, not war
Trade pacifies countries because it changes the nature of international relationships—from a zero-sum mindset to nonzero-sum one.
A zero-sum mindset sees the international stage as one where one country's losses are another country's gains, and this mindset pushed much of the international relationships of the first half of the 20th century. Proponents for the Smoot-Willies Tariff believed the loss of foreign business would be a net gain for American companies. They were wrong. Proponents of nationalism saw the losses of one country as a means to expand the prestige and legacy of their home country. They were also wrong.
The second half of the 20th century shows us that trade can, and should, be nonzero-sum. As Adam Smith wrote in The Wealth of Nations: “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it from them with some part of the produce of our own industry employed in a way in which we have some advantages."
Of course, there will be times when communities will have to make concessions to the global market, and just because a country is open to a nonzero-sum mindset doesn't mean there won't be bad actors. However, an openness to international alliances and trade can help countries develop the treaties and agreements necessary to support those disenfranchised communities and punish the bad actors.
As Michael Forman, a lead trade negotiator in the Obama administration, told Vox: “[W]e're hitting our closest allies and partners with a set of tariffs under the justification of national security, while the administration is making it more difficult for those allies and partners to work with us jointly to put pressure on China to reduce its excess capacity."
'No, you go first.' US President Donald Trump (L) gestures next to China's President Xi Jinping during a business leaders event at the Great Hall of the People in Beijing on November 9, 2017. (Photo by NICOLAS ASFOURI/AFP/Getty Images)
The reason why trade wars are bad, both for the economy and national security, is because they replace the advantages of international trade—that is, everybody wins to a degree—with all the disadvantages of a militaristic, winner-take-all outlook—that is, one country wins at the expense of others.
Unfortunately, President Trump's view the world appears to be zero-sum. Underneath its populist sheen, “America first" is really “America alone." And as history has shown us, the countries that don't stand together, fall together.
*See Max Roser's “War and Peace" entry at Our World in Data for more on the decline of war in the 20th century.
The week-long global protest, which is calling for an end to the age of fossil fuels, is taking place in more than 160 countries today.
SOPA Images / Contributor / Getty
- Millions of people around the world are taking to the streets to demand more urgent action on climate change.
- The protests come just days ahead of the 2019 UN Climate Action Summit.
- Although it's unclear exactly how many people are participating, it's likely to be the largest climate protest ever.
Are tiny homes just a trend for wealthy minimalists or an economic necessity for the growing poor?
- The tiny home movement has been popular on social media sites, often portraying an idyllic lifestyle that's cheaper and better for the environment without sacrificing aesthetics.
- But tiny homes may become the answer to a growing population and growing inequality.
- As the movement continues to build up steam, one has to wonder whether it's a housing crisis solution with a new coat of paint.
Tiny homes. They're the watchword of the Home & Garden network, at once an Instagrammable, envy-inducing lifestyle and an unfortunate necessity for a generation struck by a recession, historically high inequality, and loans taken out for an ostensibly necessary education that's failed to really net any benefits.
But the question is, which are they? A symbol of a smarter, more environmentally-conscious, humbler generation — or a symbol of one that's had to make do with less than its predecessors? (See: "Millennials buy the things their parents did — but they're much poorer.")
Downsizing housing and hubris
Image source: Mike Morgan / For The Washington Post via Getty Images
Will tiny homes look like this in the future -- smaller and more efficient but still beautiful?
In the U.S., things are just bigger, and houses are no exception. The median size of a single-family home in the U.S. peaked in 2015 at 2,467 square feet. Compared to other parts of the world — particularly Europe — this is a massive figure. There's a variety of reasons for this; one, for example, is that Americans began driving early and often, which transformed the design of their cities and suburbs. Developers could build outside of urban centers where the land was cheaper and more plentiful, enabling bigger houses to be bought.
In addition, the idea of having a lot of space seems to be an appealing one to the former European colonies — where Europeans have often lived in more cramped, repurposed older buildings, Australians, Canadians, and Americans had the opportunity to seize land (despite it already being occupied) and build new, sprawling settlements throughout it. The prosperity that the America saw in the 20th century didn't hurt, either; why not build big if you've got the money to spare?
But a considerable amount of this space is wasted. A UCLA study found that the majority of people spend their time in the kitchen or around the television and very rarely use the living room or porch. As a result of these extra, unused spaces, more resources are wasted on construction, and energy consumption is double what a family would need if their house only had the rooms that they actually use.
Smaller, more energy-efficient houses are appealing to a growing population of minimalists and resource-conscious individuals. In 2017 alone, the sales of tiny homes increased by 67 percent. Coming in at under 400 square feet on average, these houses are also understandably cheap — for tiny homes on wheels, the average cost is $46,300, while those with a foundation cost on average $119,000. As a result, 68 percent of tiny homeowners don't even have a mortgage.
Downsizing out of necessity
Image source: George Rose/Getty Images
A community of tiny homes for homeless people known as "Nickelsville" in Seattle.
On the other hand, the group of people drawn to tiny homes isn't just homogenously composed of wealthy minimalists looking to reduce their consumption while still appearing trendy. In 70 percent of the U.S., the average worker can't afford a home, one-third of adults are a $400 bill away from financial difficulty, and a quarter have no retirement savings whatsoever.
Under these conditions, downsizing may be the only viable method to survive. Consider, for instance, how cities such as Seattle, Detroit, and Denver are constructing tiny homes as emergency shelters or transitional housing for the homeless. There are also the many retirees that had their savings wiped out by the Great Recession who now live nomadically in RVs and modified vans. This tiny-living trend also has its Instagram cheerleaders, but the reality of it is less idyllic. Journalist Jessica Bruder and author of Nomadland related an anecdote to MarketWatch illustrating the nature of nomadic tiny living:
"I talked to one couple, Barb and Chuck. He had been head of product development at McDonald's before he retired. He lost his nest egg in the 2008 crash and Barb did, too. One time, Barb and Chuck were standing at the gas station to get $175 worth of gas and the horror hit them that their account had $6 in it. The gas station gentleman said 'Give me your name and driver's license and if you write a check, I will wait to cash it.' He waited two whole weeks before he deposited it."
This might become a reality for more people in the future as well. Inequality widens when the rate at which wealth grows — say, your stocks or the price of your house — grows faster than the rate at which wages do. Research suggests that wealth is growing at a breakneck pace, keeping in line with economist Thomas Picketty's prediction of a dramatically inequal future.
Solutions for this will need to be found, and many municipalities or private individuals may find such a solution in constructing tiny homes. Homelessness is a powerful, self-perpetuating force, and having shelter is an obviously necessary step to escape poverty.
Regrettably, if tiny homes are being driven primarily by resource-conscious but fundamentally economically secure individuals, we can expect the trend to remain just that; a trend. In a few years, fewer and fewer tiny houses will be constructed and sold, and eventually there will just be a small contingent of diehard proponents of the lifestyle. If, however, the tiny home trend is being driven primarily by economic inequality, then we can expect it to stick around for a while.
Can Impossible Foods beat other brands — like Beyond Meat and Tyson — in the war to dominate the alternative meat industry?
- The Impossible Burger will be available in 27 Gelson's Markets stores in Southern California starting Sept. 20.
- Beyond Meat and Impossible Foods sell plant-based burgers in restaurants, but only Beyond Meat sells products in grocery stores.
- Tyson could begin to edge out these smaller companies with its unique meat product that contains plant and animal components, appealing to health-conscious "flexitarians."
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