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Sunday, Oct 20, 2019
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Column: Why Trump's trade war won't end well

The headlines are getting repetitive. Either the trade war is escalating and markets reeling or a deal is eminent and markets stabilizing. In both instances the larger story is getting lost: President Donald Trump's trade policy is costing us hundreds of billions of dollars and going nowhere. Congress could stop this wastefulness now, and if they won't it is time to elect people who will.

The key thing to understand about trade policy is that Congress has the constitutional authority to make it. However, Congress granted presidents authority on two important counts. First, the president may impose tariffs under certain conditions such as threats to national security; this allows for quick action when necessary without additional approval. Second, an administration can negotiate the details of a trade deal and then present it to Congress for an up or down vote. This authority enables productive negotiations between trade representatives without the threat of Congress amending key details, which has historically made trade deals like NAFTA easier to pass.

Trump has used the first authority to claim national security concerns and impose tariffs on China and other countries. Such claims are nonsense; there is no threat to national security from Chinese imports. But the authority to use it, now claimed, is largely uncontested by a spineless Congress. Supposedly Trump's tariffs are designed to bring countries to the negotiating table and hammer out better trade deals. We saw this strategy with revisions to NAFTA: Trump threatened and put in place some tariffs, Mexico and Canada negotiated, and Trump claimed victory when a new deal was agreed upon.

The media and financial markets followed along, and after some volatility the markets stabilized once a deal was announced. Here are the problems: First, the new NAFTA is a lot like the old NAFTA, but slightly worse with more onerous regulations and rules regarding what percentage of the value of products gets produced where. (If that sounds convoluted, it is; now imagine trying to follow that rule.) Second, the deal was negotiated, but still has to get through Congress to be implemented. It seems quite unlikely that both the House and Senate will find majorities for a new NAFTA that is mostly the same as the old but adds complex rules and regulations in a few places. So nothing was accomplished, nor will it be. If and when the deal goes to Congress (purportedly this summer), Trump will have lots to tweet about and markets may panic once again, but the president has shown no ability to convince Congress to actually support his policy.

Now consider the current escalation with China. Last week the Trump administration and their Chinese counterparts were supposedly close to an agreement, which should have led to the lifting of the 10 percent tariffs Trump put on many Chinese goods previously. Like the new NAFTA, any deal with China would have to get through Congress. It is impossible to say how Congress would react, but I am not optimistic given the relationship of this administration with Congress. China seems to have considered the situation and treated the negotiations as a starting point that could possibly later be codified into law. When the Trump administration demanded that China change their laws immediately, China balked. Why would they change their laws for a negotiated agreement that Congress has not even seen? When they refused, Trump slapped on more tariffs, and China has now responded in kind. The markets tumbled and everyone is wondering what happens next.

Here's the answer: nothing productive. China has no reason to take Trump seriously when the chances of him getting an agreement through Congress are low; they attempted to appease him with superficial changes (a strategy which appears to have worked for Mexico and Canada with NAFTA). This appeasement has failed, and now neither side wants to appear weak by backing down. We're at an impasse. In the meantime the tariffs, while not enough to send our economy into recession, are resulting in losses of hundreds of billions of dollars to both countries. The losses will be shared by consumers and firms and both economies will be poorer. Congress could stop this idiocy by simply restricting the president's authority to put in place such tariffs and declaring the current ones invalid. Wouldn't it be nice if they cared enough to try? Instead everyone will be a little poorer for no good reason.

Alan Green is associate professor of economics and chair of the economics department at Stetson University.

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