President Donald Trump’s announcement that he would place tariffs on steel and aluminum imports has economists cringing. Conservative Republicans are dusting off the principles they learned in Econ 101, liberal Nobel laureate Paul Krugman is warning that Trump will start an economically destructive trade war, and prominent world leaders are vowing to prove Krugman right. On Friday, European Commission President Jean-Claude Juncker threatened to retaliate against “unfair” U.S. tariffs with new levies on American motorcycles, bourbon and blue jeans.
It’s messy, unpredictable and unlikely to generate much international goodwill. But the truth is, Trump’s clumsy volley can’t start a trade war. Despite its blunt imprecision, a tariff on steel and aluminum just doesn’t affect very much commerce. More importantly, the world is already living through a trade war. It’s been raging since the 1990s.
The international experiment typically referred to as “globalization” isn’t a sterile set of enhancements to industrial efficiency. It’s a political doctrine. Its terms were controversial when they were ratified in the 1990s with the establishment of the World Trade Organization, but the project was charged with very specific political goals. Globalization was supposed to foster international stability and improve the standard of living for rich and poor countries alike, while encouraging ― in the words of then-President Bill Clinton ― “political reform” in nations hostile to democracy.
A quarter of a century later, it’s clear that this system has failed. Its fruits can be seen in the rise of far-right nationalist groups throughout Europe, the election of Donald Trump in America and the rise of an authoritarian superpower in China.
These are big problems that Trump’s little tariff won’t fix. But he also can’t break what is already broken.
As with just about any Trump policy proposal, the steel and aluminum tariff is riddled with “ifs.” The president has a habit of promising major changes and then doing ... nothing. He’s been talking tough on trade his entire presidency, while watching the trade deficit drift higher as manufacturing jobs continue to disappear. On Twitter, he seems to have already shifted his proposal from a tariff on steel and aluminum to an import duty covering everything being shipped into the country. Nobody really knows where this thing is headed.
But the response from the European Union’s Juncker is instructive. He called Trump’s announcement “a blatant intervention to protect U.S. domestic industry,” which was not “based on any national security justification.”
It’s true that the U.S. hasn’t cited national security to justify steel tariffs in the globalization era. But Franklin Delano Roosevelt and Harry Truman certainly regarded the domestic steel industry as a national security asset, and both presidents implemented some pretty radical policies to preserve it (Truman even briefly nationalized the steel industry to break a strike during the Korean War). Trump’s decision is diplomatically reckless, but it is not, as Krugman charged, “transparently bogus.”
FDR and Truman recognized that trade policy isn’t really about prices and production. Tariff reductions, international currency summits and bank bailouts are, at their root, methods of distributing political power and accountability. Advocates of the 1990s globalization experiment, meanwhile, have a tendency to describe the status quo as “fair” or “free,” while attacking deviations from it as offenses against the sanctity of prices. But globalization isn’t neutral. It rewards some interest groups and disadvantages others.
Under WTO treaties and a series of pacts modeled on the North American Free Trade Agreement, prescription drugmakers in the U.S. and Europe are guaranteed long-term global monopolies on life-saving medication. This encourages predatory pricing, restricts access to medical care and burdens public budgets ― especially in poor countries.
The labor rules included in those same agreements have encouraged manufacturing jobs to flow from the U.S. to countries that suppress wages and workers’ rights with authoritarian tactics and outright violence. Meanwhile, multinational corporations are granted the right to challenge the laws and regulations produced by democratic governments before international courts.
These are all just examples. The core idea was to empower corporations to drive social progress that, globalization proponents believed, governments were incapable of delivering.
These policies didn’t fall out of the sky on the sixth day of creation. They were developed in the 1990s, and public health advocates, environmental organizations, labor unions, consumer protection groups and human rights activists have been working to change them ever since.
Trump hasn’t shown a hint of interest in reversing any of this humanitarian damage. But criticism of his tariff has come with a reflexive defense of these policies that have empowered anti-democratic movements because they are, ultimately, undemocratic.
Trade on mutually beneficial terms can’t solve every political problem. But by guaranteeing citizens of democracies access to resources, jobs and credit, it could remove the economic fuel for resentment and hostility. Instead, globalization has created the impression that the system is rigged ― because it is.
The EU, for instance, is essentially a trade war between Germany and the European periphery. Germany runs up persistent trade surpluses with poorer countries, securing good manufacturing jobs for itself while saddling its neighbors with massive debt burdens, mostly owed to German banks. When these debts start to look unpayable, Germany ― acting through the EU and the European Central Bank ― declares economic war on countries that threaten to default. That’s what happened to Greece in 2015. Greek democracy was sacrificed for German banking profits.
Militant nationalist parties have risen up throughout Europe, capitalizing on angst about globalization to scapegoat Jews, foreigners and refugees. Grievances about jobs shipped abroad and austerity imposed at home have been channeled into anger toward people who look different. It’s an old playbook, and it works depressingly often. Trump racked up political victories in counties most adversely impacted by trade with China ― including in the decisive states of Pennsylvania, Wisconsin and Ohio ― as he, too, ranted against globalization and immigrants.
It’s too late to remedy all this with import duties and tariffs alone. Even modest goals, like attempting to rebuild the American manufacturing base, would take years of work re-engineering global supply chains. But whatever happens, Trump’s latest provocations will still be just a product of this broken system, not its cause.