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 protesters on the street aren't just taking up space, they carry on a well thought out tradition.
- Nonviolent protests designed to effect change are a common occurrence around the world, especially today.
- While they may seem to be a sign of sour grapes or contrarianism, there is a serious philosophical backing to them.
- Thinkers from Thoreau to Gandhi and King have made the case for civil disobedience as a legitimate route to change.
With just a few strategical tweaks, the Nazis could have won one of World War II's most decisive battles.
- The Battle of Britain is widely recognized as one of the most significant battles that occurred during World War II. It marked the first major victory of the Allied forces and shifted the tide of the war.
- Historians, however, have long debated the deciding factor in the British victory and German defeat.
- A new mathematical model took into account numerous alternative tactics that the German's could have made and found that just two tweaks stood between them and victory over Britain.
As little as an extra dollar could mean a significant decrease in suicide rates.
- A new study found that a dollar increase in minimum wage correlated to nearly a six percent reduction in suicide rates among adults aged 18 to 64 with a high school degree or less education.
- Increasing the minimum wage was found to be most effective in the reduction of suicides when unemployment levels were the highest.
- According to the researchers' predictions, raising the minimum wage by just one dollar during the 2008 economic collapse could have prevented over 13,000 suicides.
Over the last few years, suicide rates have been on an alarming rise in the United States. An analysis by the Center for Disease Control found that American suicide rates have gone up by 33 percent since 1999, the highest rate recorded in the country since 1942.
Mental health is a complex topic, and suicide cause and prevention can't be chalked up to any one thing or solution. But, according to a recent study, one answer to preventing at least some of these suicides might be a simple little public policy adjustment: Raising the minimum wage.
The link between financial stress and suicide
Topical Press Agency / Stringer
There are, of course, a multitude of variables that can foster the extreme anxiety and depression that might lead a person to consider ending his or her life. A number of studies in the past indicated that financial stressors — such as mounting debt, the loss of a job, or unemployment — are a big contributor when it comes to the factors that play the most significant roles in suicide. The likelihood of suicide increases among financially distressed people as things like debt become harder to manage.
Because suicide and depression more often affect people who have lower incomes and levels of education, it means that this demographic is also likely to be working at or close to the minimum wage. It seems obvious that researchers would be interested in looking at the correlations between suicide and minimum wage.
New research on suicide and minimum wage
Recently, a team of researchers from Emory University took an in-depth look at the relationship between minimum wage laws and suicide rates. They found that the two do correlate, but only during times of high unemployment and among those with a high school level education, or less.
When it comes to minimum wage, state and federal governments both set standards. The federal government sets a bottom "safety net" for minimum wage. State governments can't dip below that, but they can exceed it. The minimum wage rules of individual states are easy to track and, conveniently, a few states changed their minimum wage during the time period of the study providing a usefully before-and-after comparison for the researchers. Collecting the rest of the data was relatively simple. States provide their unemployment rates, share of GDP, and various other forms of public assistance. Additionally, the National Vital Statistics System provided researchers with a trove of death information, including the cause of death as well the individual's educational background.
Researchers used a "differences in differences" analysis to determine how minimum wage laws were linked to suicide rates. This is a statistical technique used to measure data from two groups, a "treatment" group and a "control" group, at at least two different time periods. One time period being before the "treatment" (in this case, higher minimum wage) and the other being after. In this study, the researchers used individuals with a college-level education as the control group as they are statistically less likely to work a minimum wage job or commit suicide. So, that group's response to changes in the minimum wage laws was compared to that of individuals with a maximum of a high school education. This data was then tracked monthly.
Findings: Higher minimum wage meant lower suicide rates
Photo Credit: Wikimedia
The effect of a one U.S. dollar increase in the minimum wage ranged from a 3.4 percent decrease to a 5.9 percent decrease in the suicide rate among adults aged 18 to 64 with a high school degree or less education. The researchers estimated a six percent reduction in suicide for every dollar increase in minimum wage among that population.
Researchers also observed that increasing the minimum wage was most effective in the reduction of suicides when unemployment levels were the highest. Specifically, a higher minimum wage had maximum impact on reducing suicide when the unemployment rate was over seven percent and minimum wages were at least $1.75 over the national minimum. According to the researcher's predictions, during the 2008 economic collapse raising the minimum wage by just one dollar could have prevented over 13,000 suicides!
Of course, poverty is not the root cause of all suicides, and mental health issues go deeper than one single economic factor. But the study underlines how reducing economic burdens during times when financial stresses are higher can reduce some of the anxiety and depression that leads to suicide risk. Ultimately, this study shows that beyond being good economic policy, raising the minimum wage can save lives by improving the quality of life for America's working class.
Now the question is, will legislators do it?
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