Letter of the Day | Trump's new tariffs will destabilise global trade
THE EDITOR, Sir:
Late last week, an unusually angry and frustrated Donald Trump surprised the rest of the world by unilaterally declaring tariffs on steel and aluminium. Even within the US, there were agonising groans - the first coming from the markets, which reacted sharply.
The general feeling was that these tariffs - 25 per cent on steel and 10 per cent on aluminium - would spark a trade war. Responding to these very real fears, Trump tweeted, "... trade wars can be good. And they are easy to win." Really, Mr President?
Allow me to remind you, Sir, of the Smoot-Hawley Act of 1930. President Hoover, like you, thought the rest of the world was taking advantage of the US as far as trade was concerned. So he decided to embrace a protectionist policy levying taxes of up to 50 per cent on imported goods. It crippled global economic activity and helped accelerate the decline in the Great Depression.
This madness only came to an end when Congress - under a different president - passed the Reciprocal Trade Act in 1934. By this time, however, a strong ethnic-nationalist populism had taken root in Europe.
Maybe a more recent event will be easier for Mr Trump to remember. In 2002, President George Bush imposed a steel tariff. History reveals that this had negative consequences for the US economy overall. For a start, 200,000 Americans lost their jobs to higher steel prices during 2002. This represented about $4 billion in lost wages from February to November that year.
More American workers lost their jobs in 2002 to higher steel prices than the total number (187,500) employed by the US steel industry itself. Every US state experienced employment losses from higher steel costs.
So angry was President Trump at the time he made this decision, he ignored the fact that the countries most likely to suffer - and react - are America's closest allies. He is claiming that jobs in the steel industry are disappearing because of unfair trade. It's not trade, Mr President, it's technology, Sir.
Our own PM may want to reflect on Mr Trump's behaviour , the implications for the US dollar, US stocks and treasuries, as well as any promise his secretary of state made when he passed through the other day.