How much are you prepared to kick in for President Trump’s protectionist trade crusade? $100? $500? Would you take a pay cut? Or give up your job?
Nobody really thinks of trade this way—but it may be time that we do. Trump seems more determined by the day to penalize nations that have a trade surplus with the United States—which makes it more and more likely he’ll penalize his fellow Americans in the process. Canada, Mexico, China and the 28 European Union countries are now working up tariffs on American imports, as tit-for-tat payback for Trump’s tariffs on steel and aluminum imports to the United States. Trump is threatening additional tariffs, and leaving no choice for foreign leaders but to respond in kind, as they show their own voters they won’t be bullied by the new American sheriff.
So tariffs are now going to upend the efficiencies thousands of companies have put in place to move goods, people and capital from place to place at the lowest cost and highest possible return. Costs and prices will rise in some parts of the economy, and when prices go up, consumers always buy less. A Council on Foreign Relations analysis of Trump’s steel and aluminum tariffs, which went into effect in March, found they’ll create some jobs in those two industries, but kill 40,000 auto-industry jobs, because of higher prices. “Given that employment in the U.S. auto industry is vastly higher than in the U.S. steel industry, such job losses would swamp any possible increase in steel employment,” the CFR study found.
Trump is considering new tariffs of up to 25% on imported autos, which would represent a much bigger hit to the US economy than the steel and aluminum tariffs. A 25% levy on imported cars would raise prices industrywide, reducing production by 1.5% and killing 295,000 jobs, according to the Peterson Institute for International Economics. If other nations responded in kind with tariffs of their own, production would fall 4% and 624,000 American jobs would disappear.
Trump campaigned on just the sort of protectionist moves he is making now. Except for one thing: While talking up the supposed benefits of protectionism, he never mentioned the costs.
Who’s going to pay?
This is Trump’s fatal weakness on trade: To fulfill his promises, he has to harm some voters. Trump makes protectionism sound like a terrific way to get something for nothing: Impose tariffs, tear up multilateral trade deals, force trading partners to accept terms more favorable to America, and then enjoy the windfall. But he didn’t tell voters they’d have to pay more for food, beverages, appliances and cars. He didn’t tell workers some of them would lose their jobs as his policies artificially crimped demand for certain goods and services. He didn’t tell farmers they’d lose access to lucrative foreign markets. He didn’t tell anybody his trade policies would make some Americans worse off.
If Trump had what Beltway pundits call political capital, he might be able to get away with this switcheroo. But he doesn’t. Trump’s approval rating is around 42%, according to Gallup, which is high for Trump but remarkably low for a president in an economy with a 3.8% unemployment rate. The last time unemployment was that low was in 2000, when Bill Clinton was president. Clinton’s approval rating at the time was 59%. And that was after the House of Representatives impeached Clinton for lying about a sordid sex scandal.
The so-called Trump base, which supposedly supports him no matter what happens, provides a core level of support for Trump. But it’s not big enough to carry him through policy madness that starts to harm working- and middle-class Americans. It’s hard to identify who exactly the Trump basers are, but here’s a proxy: Trump’s approval rating among Republicans has risen to 90%. Sounds high. But only 26% of Americans say they’re Republicans these days. So Trump Republicans—a rough measure of his base—are less than 24% of the population.
That’s with the economy strong and jobs plentiful. If Trump’s trade policies end up raising prices or costing jobs, his approval among moderates who favor the Republican tax cuts and Trump’s deregulatory push will fall, dragging his overall approval rating back into the 30s. And for tariffs to work, they have to raise prices; if they don’t, then they don’t do anything to help the group targeted for protection.
Will voters tolerate rising prices and endangered jobs, while still giving Trump and his fellow Republicans enough votes in the midterm elections for them to retain control of Congress? It’s possible, yet American voters are notoriously cranky about anything that thins their wallets. The free trade Trump derides has made the United States a consumer paradise, with the lowest possible prices for virtually everything (except health care and education, which can’t be imported). Americans are also conditioned to getting more from their government than they pay for, thanks to Uncle Sam’s unique ability to borrow indefinitely (and foist today’s costs onto future generations). Trump demands fair trade, but Americans are not accustomed to paying their fair share.
Trump seems to think the mere threat of tariffs will be enough to force concessions from trading partners who will cave if pushed hard enough. We’re in the process of learning that’s not the case. It is time for Trump’s Plan B, if he has one.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman