Trump’s Top Economist Sees Trade Wars Like Battle Against Scurvy
Donald Trump’s top economist has a new analogy for those bemoaning the impacts of the administration’s trade wars: Just think of the U.S. economy as an 18th century warship battling a scurvy outbreak and Trump’s tariffs and other trade weapons as the bitter lemons needed to cure it.
“If you have scurvy and you don’t get vitamin C, then you are going to die,” said Kevin Hassett, chairman of the Council of Economic Advisers. “But vitamin C might not always fix you. Maybe it does. So if I give you vitamin C did I increase uncertainty? You were certain you were going to die before, but now you’re not.”
His point is that the president is repairing a sick economy that has been laboring for too long under the weight of disastrous trade deals that disadvantage the U.S. against economic competitors and trading partners such as China and Mexico.
But it also gets at a broader question that Trump is facing about one of his economic pillars as he heads into his 2020 re-election campaign. Voters will be wondering if the economic disruption from Trump’s trade policies will be worth it in the end, and looking for proof of their positive impact despite the evidence of mounting costs for the world’s largest economy.
Hassett’s riff on scurvy was made last week in an interview with Bloomberg in the hours after the U.S. International Trade Commission released its official, independent assessment of the economic impact of the U.S.-Mexico-Canada Agreement, Trump’s replacement for the quarter-century-old Nafta.
The ITC’s headline finding didn’t include the sort of numbers Trump is likely to hail at a rally. The ITC economists estimated that the USMCA would boost gross domestic product by 0.35 percent, or $68.2 billion, and create 176,000 jobs in year six after it took effect. They also had a less rosy view of what it would mean for the U.S. auto market -- higher prices, lower sales and fewer vehicle production jobs.
Moreover, much of the economic gain was ascribed to the removal of uncertainty caused by new rules on data flows and other regulations. Without those measures, the ITC economists found the new Nafta would actually lead to a modest 0.12 percent loss in GDP in year six.
The problem for the administration is that, a year after Trump launched his tariff wars, there’s a growing pile of economic research documenting their negative impact on the U.S. economy.
The latest, by a Federal Reserve Board researcher working with two University of Chicago economists, finds that tariffs imposed by Trump last year on imported washing machines had raised the cost of both washers and un-tariffed dryers in the U.S. by $86 and $92 respectively. The roughly 1,800 jobs added as a result came at an average cost to consumers of $817,000.
Two studies released in March found the tariffs imposed by Trump on some $250 billion in Chinese imports had cost consumers and companies billions of dollars, with one of the analyses calculating a net loss of 0.04 percent to U.S. GDP from the direct impact of tariffs alone. Neither looked at what many economists feel is the bigger -- yet harder to quantify -- negative impact in the form of stalled business investment due to the uncertainty that Hassett views as medicine.
It’s not just the U.S., of course, that’s paying a price.
The International Monetary Fund cited the uncertainty caused by trade tensions as a major factor behind its downgraded global growth forecast earlier this month. In another paper released on Monday, economists from the World Bank and Dartmouth College argued the U.S. shift from decades of “rules-based” tariff policy to a “power-based” Trump model represented a major blow to global trade rules at odds with the long-term interests of either the U.S. or the world.
So far Trump and his team have dismissed contrary findings by offering their own studies and hailing broader gains in manufacturing jobs in a healthy economy as proof his trade policies are working.
The administration on Thursday countered the ITC’s negative findings on the auto sector by releasing its own estimates of a surge in jobs and investments -- some pre-existing -- as proof stricter auto rules in the USMCA will lead to more U.S. manufacturing.
Trump has appealed to farmers hit in the trade wars by invoking their patriotism. Other administration officials have sought to deny any negative impact. And then there is Hassett’s bitter pill approach.
“We’ve had these very bad trade deals, and we are taking the medicine to improve them,” Hassett said. But come 2020, will voters believe the prescription worked?
©2019 Bloomberg L.P.