Are There Winners and Losers in a Trade War?

Stuff Lauren Vogel bamb here. In May of twenty nineteen, the Trump administration increased tariffs on two hundred billion dollars worth of Chinese exports, raising them from ten percent to The increase is the latest skirmish in a trade war that's been rapidly escalating since eighteen, a trade war in which President Trump has attacked what he views as unfair Chinese trade practices and demanded that the country by more American products to reduce the US China trade deficit, which

total three hundred and seventy six billion dollars in sev The Chinese responded to the latest increase by expressing quote deep regret over the development and said they planned to take quote necessary countermeasures. These tariffs aren't the first that

the Trump administration has imposed against China. In July eighteen, the administration hit China with ten percent tariffs on two hundred billion dollars worth of imports, a penalty that has since affected the prices that US consumers pay for scores of products ranging from computers to luggage. A Chinese officials quickly responded, adding their own tariffs on US products and stepping up border inspections of US goods and holding up licenses for US companies to do business in China. And

Trump is also waging trade wars on other fronts. In May of twenty eighteen, his administration imposed steel and aluminium tariffs on Canada, Mexico, and the European Union. The US's neighbor to the north immediately counterpunched, with Canadian Prime Minister Justin Trudeau announcing that it would slap retaliatory tariffs on U S exports to Canada. A tariff is a border tax on the buyer. When the United States levies a tariff on products imported from other countries, it is the

U S importer who pays the tariff, not the foreign exporter. So, for example, when the Trump administration orders a tariff on Chinese tech products, the U S importer of those tech products will pay the increasing cost, not the Chinese. Ultimately, these tariffs make it more expensive for Americans to import Chinese goods or goods from whichever nation the tariff is being imposed on. The money is collected by customs and border protect and the proceeds go to the U. S.

Treasury to become part of the nation's general budget. It's hardly the first time that the US and other nations have become involved in such a conflict over trade. Trade wars can happen for various reasons. It could be that one nation decides that it's getting a raw deal because another nation provides subsidies to its manufacturers so that they can export goods that are priced too low for local

producers to compete with. Or it could be the nation decides that wants to nurture its own industries by hindering their foreign competitors with protective tariffs. Centuries ago, trade wars often involved actual violence. In the seventeen and early eighteen hundreds, for example, China sold a lot of tea and porcelain to the British Empire, so much that the British got concerned about the outflow of silver to pay for it.

They decided to fix the trade and balance by getting China to import large quantities of opium that the British produced in India. When the Chinese government eventually bulked at this arrangement, the British sent in their warships and forced China to sign an eighteen forty two treaty. The not only open China to British trade, but gave the territory of Hong Kong to the British. This conflict became known as the First Opium War. But even a bloodless trade

war can caused plenty of suffering. A lot of observers are seeing unsettling parallels between Trump's multifront trade warfare and the trade war that erupted in the nineteen thirties after President Herbert Hoover signed into law the Smoot Holly Act, which raised US tariffs by an average of sixteen percent. Other countries enacted their own tariffs in response, leading to

a disastrous global decline in trade. We spoke via email with Dartmouth College economics professor Douglas A. Irwin, author of the twenty eleven book Peddling Protectionism, smoot Holly, and the Great Depression. He said, initially, smoot Holly was not a response to the Great Depression. It was passed by the House in the spring of nineteen twenty nine, before the business cycle peak, at a time when the economy was

doing well and the unemployment rate was low. However, it got held up in the Senate and by that time. The stock market had crashed in the fall of nineteen twenty nine and the economy was moving into a recession, which later became the Depression. The economy continued to get worse after the passage of Smoot Holly, and the brutality gation against you as exports that occurred because of it is thought to have contributed to the severe economic difficulties

at that time. So there is a cautionary tail here. Just because the economy is doing well and close to a peak does not mean that things cannot go badly if one moves in a protectionist direction. Smote Holly also helped stimulate a surge of angry nationalism in other countries. Irwin explained it this way. If one country slaps tariffs on your goods, the usual response is to take offense

and retaligate, rather than to turn the other cheek. Both in nineteen thirty and today, Canada was very upset with US terrorf action and retaliated nationalists gain strength unperceived slights. And just think about how China still remembers being humiliated by Western powers during the Opium Wars of the nineteenth century and its vow to never be so weak again. When the Trump administration bullies countries today on trade, it naturally leads other countries to stiffen their resolve to resist

the US. Another big problem with trade wars is that there's a lot of collateral damage. As Philip I. Levey, a Senior Fellow on the Global Economy for the Chica GO Counsel on Global Affairs, recently pointed out on vox, poor people tend to suffer disproportionately since basic necessities that they already struggle to afford food, shooes, and clothing can become more expensive. We also spoke with Levy via email. He added that certain sectors of the economy can be

hit worse than others. Quote, if you are in a steel using sector like an auto parts of manufacturer, you are more likely to be hurt by the steel tariffs. If you're in the construction sector, you're likely hurt by tariffs on steel and on Canadian softwood lumber. These are hits to income and employment, which are in addition to the hits people take as consumers. However, the producers of the products that a government is waging war over and their investors stand to benefit. Levy said to be fair.

If you're a shareholder in US steel, you're pretty happy you don't have to face as much competition. True for workers as well, but much of the job loss has been to automation, not trade, so the tariffs don't fix that. Though the world economy and global trade are stronger today than they were in the early nineteen thirties, Levy argues that a trade war today might be even more damaging. He said, there's this unusual argument about why this is

a great time for a trade war. It's a little like saying that today is a good day for me to slam my hand in the car door since I don't have to give a piano performance in the near future. While that may be true, it's still not a good idea to slam my hand in a car door. He continued, Why might now be worse than the nineteen thirties for the United States? Back then everyone was doing it and

we didn't really have global supply chains. Now it is not the case that all countries are raising trade barriers against everyone else. It's the United States that's carving itself out of global supply chains. The rest of the world is still striking trade deals, whether it's the European Union in Canada, the European Union in Japan, or the Comprehensive and Progressive Agreement for a Trans Pacific Partnership. In Levy's opinion,

Trump's trade war quote will uniquely disadvantage US business. Today's episode was written by Patrick J. Tiger and produced by Tyler Klain. Brain Stuff is a production of I Heeart Radio's How Stuff Works. For more on this and lots of other economical topics, visit our home planet, how stuff Works dot com, and for more podcasts. For my heart Radio, visit the iHeart Radio app, Apple Podcasts, or wherever you listen to your favorite shows.