Trump Claims That Trade War Only Risks 'The Bank's Money'
He's so, so wrong about that. But at least he's admitting a trade war won't be good or easy to win.
Eric Boehm|Jul. 23, 2018 11:20 am
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Which brings me to President Donald Trump. In an interview that CNBC aired over the weekend, Trump tried to wave away the potential negative economic consequences of his trade war by suggesting that "we're playing with the bank's money."
As CNBC goes on to explain, the stock market is up 31 percent since Election Day 2016. Trump seems to believe that those gains give him the flexibility necessary engage in a trade war.
To paraphrase George Bailey: Mr. President, you're thinking of this place all wrong.
The notion that any losses incurred by a trade war won't hurt because we're only risking recent economic gains is a dangerous misunderstanding of how economies operate. That logic might work in one of Trump's casinos: win a few hands of blackjack, and it's easy enough to set aside your original chips and "play with house money," as the saying goes. But the president is forcing ordinary Americans to risk economic gains they might prefer to put to other uses.
Trump might measure the success of his trade war by the impact on the stock market, but that ignores the far more practical effects felt by workers and businesses from coast to coast. It ignores the jobs that could be shipped overseas to avoid tariffs, and the loss of jobs at businesses that simply can't compete with artificially higher costs for raw materials such as steel and aluminum. The administration's plan to slap tariffs on imported cars and car parts alone could reduce U.S. economic output by $59 billion, the Commerce Department was told at an administrative hearing last week.
Trump continues to escalate the trade war. On Friday, he said he's willing to impose tariffs on $500 billion worth of Chinese imports—in other words, just about all of them—after already hitting $34 billion of Chinese goods with tariffs earlier this year.
If that happens, the economic consequences of the trade war will outweigh the economic boost created by last year's tax cuts, according to a new analysis from The Tax Foundation, a nonpartisan think tank. "If all tariffs announced thus far were fully enacted, U.S. GDP would fall by 0.47 percent ($117.6 billion) in the long run, effectively offsetting one-quarter of the long-run impact of the Tax Cuts and Jobs Act," write Tax Foundation analysts Erica York and Kyle Pomerleau. "Wages would fall by 0.33 percent and employment would fall by 364,786."
Just the bank's money? Hardly.
This isn't just an economic blunder; it's probably a political blunder too. After two years of touting economic growth and a rising stock market as proof that his administration is doing the right thing, it's odd to suggest that those gains are only collateral against future mistakes. And it's hard to imagine that voters will shrug off the costs of a trade war by saying, "Well, it was just the bank's money."
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