The dangerous protectionism of Donald Trump

He warned us that he would do it. Donald Trump has unleashed a new trade war. He is a confessed mercantilist. We are only at the second skirmish. The first one was insensitively renouncing the Trans-Pacific Agreement. This time it has set high tariffs on the import of steel (25%) and aluminum (10%). Then he has boasted that he will win the race. Probably he is right: he will triumph. Europe depends more on exports than the United States. But Europe is an ally and it makes no sense to treat it that way. It will be a Pyrrhic victory. It will provoke reprisals that we will all end up paying.

Herbert Hoover, a Republican president who before arriving at the White House was a great public official, also won the commercial war that generated the Smoot-Hawley law of 1930. In that year, fulfilling a campaign promise of 1928, denying the thesis that it was a consequence of crack of ‘29, that terrible crisis that started on a black Thursday that it took more than a decade to be unveiled, the United States raised tariffs on thousands of agricultural products imported from abroad. It was the end. That protectionist victory exacerbated European nationalism, reduced international trade transactions by 65%, aggravated the Great Depression, contributed to the victory of Franklin Delano Roosevelt (the Democrats were in power for 20 consecutive years, from 1933 to 1953), and approached the horrendous outcome of the Second World War with its 60 million corpses, the destruction of European Jew community (the greatest concentration of talent in history), and half a planet turned into rubble by the merciless bombings of Tyrians and Trojans.

In both Trump and Hoover the error had the same origin: not understanding the meaning of the trade balance. Or use it demagogically to please political clients and harm the rest. Or to understand it very badly, as the mercantilists have always done, constantly vigilant of how much we buy or sell to other countries, without understanding that the resulting data often does not mean much when it comes to taking stock.

It is true, for example, that China sells much more to the US than vice-versa. And so? Americans enjoy much cheaper products and invest the price difference in new companies, in salaries, in benefits for society. In addition, with part of their profits the Chinese acquire US treasury bonds, which would be something like exchanging things, tangible objects that have cost millions of hours of work, for papers for which they receive a modest interest, but have the backing of a great country whose institutions operate with seriousness and the promises of payment are religiously fulfilled.

90% of international transactions are made in dollars. 70% of the countries keep their reserves in dollars or in treasury bonds. What else does Trump want? During the 42 consecutive years in which the balance of trade of the United States has been negative, the national economy has grown exponentially, has achieved almost full employment, and now reaches 18 trillion dollars, but that has been possible, among other reasons, thanks to a trade deficit of 800 billion dollars (just over 4% of GDP) that can not be considered losses and return to the coffers of the country in various ways.

In contrast, between 2001 and today, Venezuela has experienced a very positive stage of trade balance, which served to enrich Ali Baba and his 40,000 thieves. However, Venezuela is not the only country that exports more than it imports: among others, Germany and the Netherlands do it, but also Angola, Brazil, the Democratic Republic of the Congo, Equatorial Guinea and Mongolia, as almost every year it happened with pre-revolutionary Cuba, without that indicator signifying too much.

It seemed that the conflict between free traders and mercantilists had been solved since in 1776 Adam Smith published his “Inquiry into the Nature and Causes of the Wealth of Nations”, but it is not true. The crude judgment of the mercantilists revives every so often and does great harm to society, impoverishes the people and, even if proposed, fosters discord and war. That’s why 107 Republican congressmen wrote a letter to Donald Trump begging him not to impose tariffs on steel and aluminum. They realized that there was no sense in fighting that war, let alone winning it.

Carlos Alberto Montaner
Member of the Academic Council, Freedom and Progress