Donald Trump is going to bring us trade wars, big time

Many in the American business community chose to initially react to Donald Trump’s election victory by taking him seriously — but not literally — about his plan to use ad hoc tariffs to initiate and “win” trade wars with foreign countries. And while Trump is likely to have significant problems getting many of his plans through Congress, that’s not going to be the case on trade.

For starters, existing statutes actually give the executive branch considerable discretion to employ various kinds of punitive or protective tariffs without congressional assent. Past presidents have generally used that power sparingly largely because they haven’t wanted to use it. But Trump does want to use it, and Congress wants to let him. Indeed, many congressional Democrats are positively eager see him do it. And while Republicans are less gung-ho, they don’t seem even remotely inclined to stand in his way.

January has been the month people began to realize that Trump probably means what he says, with the stock market halting its post-election climb and attendees of the annual World Economic Forum in Davos, Switzerland, dreaming that China will be the new champion of the global trading order.

The truth is that while China is obviously a large and important country, the American economy remains far larger. If Trump wants confrontational trade policies, then confrontational trade policies are what he’s going to get. And all signs are that’s exactly what he wants.

Wilbur Ross sailed through his confirmation hearing

Wilbur Ross has been tapped by Donald Trump to not only serve as commerce secretary but also beef up that department’s usually minor role by taking the lead on US trade policy. Ross is a billionaire investor who famously profited off timely purchases of ailing American steel companies that were nurtured back to health by protective tariffs. His nomination was enthusiastically endorsed by the steelworkers union, but the trade policy white paper he wrote for the Trump campaign along with Peter Navarro is ridiculous and grounded in a fairly elementary analytical error.

Appointing rich people to important government jobs they aren’t conventionally qualified for and having them base their work on theories that are near universally derided by experts is a very Trumpy way to behave, and so I tuned in to Ross’s confirmation hearings Wednesday morning expecting that I might see some fireworks.

That’s not what happened, at all.

A handful of Senate Democrats tried to bait Ross into criticizing Trump on financial conflicts of interest. A few, like Richard Blumenthal (who wanted more permits for Connecticut fishermen) and the vast majority of the committee’s Republicans, focused mostly on idiosyncratic local issues. Cory Booker pressed Ross unproductively on his exact views on infrastructure. But the handful of senators who did dig in on trade issues did so basically just to urge Ross to follow through on the campaign’s protectionist promises. And while Ross tried to avoid committing himself too firmly to any specific course of action, he was overwhelmingly agreeable.

Republicans are trying a gentle approach

Strikingly, Republicans on the committee did not seem interested in standing up for the GOP’s commitment to free trade either. As recently as 18 months ago, congressional Republicans were enthusiastic about the Trans-Pacific Partnership and frustrated with President Obama’s inability to bring more Democrats along for the ride. But none of them were interested in making the case to Ross that Trump’s protectionist approach might be the wrong way to go.

The party has decided, it seems, that protectionism is smart politics and they don’t want to fight with Trump about it.

Instead, what the congressional GOP has come up with is the idea of bundling a giant corporate income tax cut with a major shift in the base of the corporate income tax called a “border adjustment.” The way this would work is that companies would be allowed to not count revenue derived by selling things to foreigners as taxable, while forbidding them from deducting the cost of imports as expenses.

This would, initially at least, act as a huge tax on imports and provide a big boost to American companies and workers imperiled by foreign competition. Most economists think that in the medium term, the value of the dollar would simply rise and offset the price impact, but many practical businesspeople disagree. Either way, it would be a broad across-the-board trade policy fix enacted in the context of something all Republicans love — a tax cut.

Trump wants war

Trump, however, spoiled the party during a Wall Street Journal interview by dismissing the border adjustment concept as “too complicated.”

It is, in fact, complicated, but really only in the sense that any tax reform is complicated. Trump’s real objection is much more likely that it’s simply too systematic. Trump is more of an improvisational thinker than a systematic one. He doesn’t want to shift American policy in a way that aids companies that compete with foreign exporters — he wants to negotiate new, better trade deals.

Anthony Scaramucci, a Wall Street guy who’s been trying to become a political player for years and has been tapped for a job in the Trump White House, said in Switzerland this week that America could wage a trade war and win. He said the US-China relationship is asymmetrical, with China depending more on the American market than we do theirs. In his hearing, Ross said that Trump would use the threat of tariffs to force foreign countries to open their markets more to American exporters.

This sort of thing has been tried in small ways by previous administrations, usually only to be met with retaliation and an eventual mutual climbdown. That’s good reason to doubt that going big on coercive trade strategies will create the results Trump is hoping for. But the only way to really know is to try. And Trump seems dead set on trying.