“Top News: A trade war between China and the United States began overnight as U.S. tariffs on $34 billion worth of Chinese goods came into effect, prompting Beijing to retaliate.

The levies are seen as the opening salvo in what Beijing has warned could be the “biggest trade war in economic history.”

The United States is set to expand the 25 percent duty to a further $16 billion in Chinese exports in the coming weeks. Speaking to reporters on Air Force One yesterday, U.S. President Donald Trump suggested further possible tariffs on $500 billion worth of Chinese goods.”

Foreign Policy – Morning Brief

(Sorry guys, this is an email, not a linkable report – hey, I know, you want a GOOD news source? Foreign Policy is one of the best.)

Do you know who wins Trade Wars? No one. Trump’s assertion that trade wars are easy to win runs completely counter to history.

The Smoot-Hawley Tariff Act of 1930 led to 61% loss of US exports by 1933 and had to be repealed a year later by The Reciprocal Trade Agreements Act of 1934. The tariff act was opposed by many of the giants of industry of the age; Henry Ford & J.P. Morgan were said to have personally appealed to Pres. Hoover to veto it. When two geniuses of industry, stable or otherwise, make this sort of appeal, a president should listen. However, as Hoover ran his campaign on the promise of protectionism for U.S. Agriculture, he was not likely to acquiesce. Even so, while initially, industry saw some improvement, the GNP fell $103 billion in the first year. By 1932, unemployment was 25%. It would take a World War to return the economy to health.

The 1960’s saw the aptly named “Chicken Wars” between the United States and Germany and France saw 25% tariffs on light trucks, potato starch, destrin and brandy imposed by the Johnson Administration. Europe responded by placing high tariffs on U.S. chickens. US poultry producers lost between $26-28 million (or about $211,000,000.00 in 2018 dollars) and nearly all the European market which they had previously held nearly a quarter! The losers on both sides were the consumers.

These are just two examples of trade wars in which no one won. Everyone lost. There are… well.. as many other examples as you wish.

As far as Trump’s tariffs go, according to The Bank of England simulations, a full-blown global trade war (where average goods tariff barriers rates rise by 10 percent) could end up hitting global GDP by 2.5 percent over three years.

These same simulations show that the US would actually be the biggest loser, with a 5 percent hit to growth.

WINNING!

This illustrates one of the key problems with the xenophobic “America First” philosophy. It assumes that we can go it alone. We cannot. We never could.

Where does one start this list? The obvious place is steel.

According to the World Steel Association’s Monthly Crude Steel Production Report, in 2017, the U.S. was the 5th ranked producer of steel; behind China, the E.U. (measured as a whole), Japan (really?), and India. The United States produced 81.6 million metric tons of steel.  That is versus China’s 831.7 million metric tons. How much steel the U.S. uses is another question – and one for which a solid answer is much more difficult to find. One source, which I’m not going to say was reliable claims 97MT – o.k, but meh. In 2017 the United States imported 35.6 million metric tons. That tells me that we use a lot more steel than we produce. Which means that until, and IF domestic steel production catches up, the American consumer will be paying more for goods related to steel.

Do you know what’s related to steel?  Pretty much everything.  See that peanut sitting there on the bar? Somewhere in its production cycle, something made of steel was involved. That price will be being passed on to you. (What’s that you say? The peanuts are free? Are they really? Has your beer price gone up recently? It will.)

According to Lydia Cox and Kadee Russ of Harvard University and the University of California, Davis, respectively, in their article Will Steel Tariffs put U.S. Jobs at Risk?, the United States imported 18% of its steel needs. Trump’s tariffs will increase the price of domestic steel and probably increase production domestically.  However, this increase in production may not result in a significant increase in jobs. The U.S. Steel industry has been in a force reduction mode since 1962, losing 75% of the human resources it once had.  This is largely due to new technology, which is unlikely to change.  Cox and Russ talk about Mini Mills which have coupled with a 10% decrease in employees in the past ten(ish) years, has created a 20% increase in production.

In fact, as seen in the last Bush Administration, when he did something similar, job losses in industries that relied on steel ranged between 26,000-200,000 (depending on who was doing the calculating).

Another question arose while writing this post. It turns out that only 2% of the steel we import comes from China. Additionally, for China, U.S. exports represent less than 1% of their steel exports. China is the 10th largest provider for the U.S. market behind Canada, Mexico, Japan, South Korea, India…etc. So one has to wonder at what this shell-game is really about other than… well… Trump’s tiny hands.

Steel is just one of a host of materials for which the United States relies on foreign supplies.

As late as last year, the United States purchased all of its rare earth metals from China. Like your cell phone? According to Victoria Bruce, the problem with U.S. REM is that much of it is contaminated with Thorium – Thorium is radioactive. Mrs. Bruce is an author/geologist and former NASA Science writer.

The rest, solar panels, washing machines, aircraft tires, nuclear reactors (we get nuclear reactors from China???), agricultural machinery, … a LOT of agricultural machinery…. Printers and copiers…  1,300+ goods overall.

I’m not an economist, and some of the economic issues sit well outside my area of expertise. But I am an expert at history, and at war. Let me say this again. Trade wars are NOT easy to win. Trade Wars do not benefit anyone. Trade Wars hurt everyone.

As to the overall effect, I’ll leave it to Dany Bahar of the Brookings Institute to explain it to you in his article, How Imports Helped the American Steel Industry.