Who Actually Wins (and Loses) in a Trade War?

investigate this question, we have to talk about tariffs. A tariff is basically a border tax levied on products coming into a country based on things like the country of origin, say China, or the type of product, say steel. When the United States implements a tariff, it is the US importer who pays the tax, not the foreign exporter. So, for example, let's say the Trump administration orders a twenty

five percent tariff on Chinese steel. If an American company wants to buy one million dollars worth of steel from China, it would cost that American company one and a quarter million, including Trump's tariff. The extra quarter of a million goes to the American government, and again it is the American importer that pays this increasing cost. Not the Chinese exporter.

The idea behind tariffs is that they should boost American business, with the hopes that instead of paying that quarter of a million dollar tax, American companies in need of steel will buy from American producers, thus helping this hard hit industry, which in turn will hire more workers to keep up with the increased demand. And sounds like a win for American business. But there's no guarantee that tariffs will play out this way, because none of this happens in a vacuum.

Maybe Chinese steel is still less expensive than American steel even with the tariff. Maybe American steel producers aren't equipped to step up production fast enough to meet demand. If American companies in need of steel decide it's easier, for whatever reason, to just keep importing Chinese steel, consumer prices will go up on everything that contains steel, like cars or washing machines. That's because the cost of making those goods will go up, and companies aren't going to just

eat the extra cost. They're going to pass it on to the consumer that in turn can have further reaching negative effects. Maybe consumers don't buy those products at all, which is bad for the companies. If consumers do cough up the dough for the higher price, they'll have less money to spend elsewhere. That means other American companies could suffer, which could cause a pullback in those industries, actually costing

American jobs overall. For the article, this episode is based on how Stuff Works spoke back in twenty eighteen with Charles Hankla, professor of political science at Georgia State University in Atlanta. He said, what trade does in the aggregate. It expands production, it expands jobs, it lowers prices. It benefits countries in the aggregate, but it has distributional impacts. What does he mean by that. Let's stick with the

example of steel. The American steel industry has been hurt by the trade of less expensive steel coming in from other countries. But the industries that use steel, those car or washing machine manufacturers, have benefited because the price of steel has gone down, and these days there's a lot more Americans working in manufacturing than in production. Of course, tariffs were not invented during the current political cycle. They're

a fact of international trading. The World Trade Organization provides a forum for virtually all countries. It has on one hundred and sixty four members to hammer out trade agreements. The WTO got started just after World War II with the General Agreement on Tariffs in Trade, and it implements and monitors trade agreements, which includes what could be described as tariffs or trade barriers or taxes negotiated by all parties.

Other agreements could be struck among nations too, like NAFTA the North American Free Trade Agreement which covers the US, Canada, and Mexico, but again those are deals that have to be agreed upon by all parties. U S presidents normally cannot impose tariffs without first going through the US International Trade Commission, which is an independent, nonpartisan government agency that was established in nineteen sixteen that researches international trade issues,

provides analysis to the President and Congress, and helps settle disputes. However, the Trade Act of nineteen seventy four gave presidents power to impose tariffs in response to matters of national security. That's how Trump was able to push tariffs through in his previous term, during which his administration hit China with ten percent tariffs on two hundred billion dollars worth of imports,

then increased that to twenty five percent. These penalties affected the prices that US consumers paid for scores of products ranging from computers to luggage, and Chinese officials responded by stepping up border inspections of US goods, holding up licenses for US companies to do business in China, and adding their own tariffs on US products. That kind of retaliation

the cansteiny business is common in a trade conflict. In early January of twenty twenty five, Trump spoke about expanding tariffs by declaring a national Economic emergency, instituting global tariffs of as much as ten percent, a tariffs on Canadian and Mexican products of up to twenty five percent, and

on Chinese products of up to sixty percent. Experts say that that would invoke a different act, the Inner National Emergency Economic Powers Act of nineteen seventy seven, though there's argument about whether that act would actually legally allow the Trump administration to do that, and furthermore about whether Trump was even making a serious threat. But this is hardly the first time that the US and other nations have become involved in conflicts over trade. Trade wars can happen

for various reasons. It could be that one nation decides it's getting a raw deal because another nation provides subsidies to its manufacturers so they can export goods that are priced too low to compete with. Or it could be that a nation decides it wants to nurture its own industries by hindering their foreign competitors with protective tariffs. Trump has spoken extensively about wanting to lower the trade deficit

and bring back American manufacturing jobs. However, many economists don't see the US trade deficit, which occurs when a country imports more than an exports, as that big of a deal. Some consider it necessary to the strength of the global economy, and many economic experts say that reviving manufacturing in America is a lost cause, that advancing technology is driving the industrialization here, not bad trade deals. 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 so that the British got worried about the outflow of silver to pay for it. They decided to fix the trade imbalance 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 the Chinese to sign the eighteen forty two Treaty that not only opened up China to British trade, but gave the territory of Hong Kong to the British. This conflict became known as the First Opium War, and it's super complicated a different episode, but even a bloodless trade war can cause

plenty of suffering. A lot of observers are seeing unsettling parallels between Trump's multi front 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. Hastuffworks also spoke via email back in twenty nineteen with Douglas A. Irwin, an economics professor at Dartmouth College. He said Smoot Hawley 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 by 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 Smooth Holly, and the retaliation against US exports that occurred because of it is thought to have contributed to the severe economic difficulties at the time.

So there is a cautionary tale 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. Smoot Hawlly also helped stimulate a surge of angry nationalism in other countries. Irwin said, if one country slaps tariffs on your goods, the usual response is to take offense and retaliate, rather than to turn

the other cheap. Nationalists gain strength on perceived slights. And just think about how China still remembers being humiliated by Western powers during the Opium Wars of the nineteenth century, and it's vow to never be so weak again, when the Trump administration bullies countries today on trade, it naturally leads other countries to stiffen their resild to resist the US. Another big problem with trade wars is that, again, there

can be a lot of collateral damage. Poor people tend to suffer disproportionately since basic necessities that they already struggle to afford, like food, shoes, and transportation, can become more expensive, and working class jobs can take a hit as well. Let's continue with the example of steel, which the Trump administration actually did impose tariffs on in twenty eighteen from Canada, Mexico,

and the European Union. Ast off Works spoke by email in twenty nineteen with Philip I. Levy, who's now a lead trade economist at the World Bank. He explained, if you are in a steel using sector, like an autoparts manufacturer, you are more likely to be hurt by the steel tariffs. If you're in the construction sector, you're likely to be hurt by terras on steel. These are hits to income and employment, which are in addition to the hits people

take as consumers. To be fair, if you're a shareholder 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. The world economy and global trade are stronger today than they were in the early nineteen thirties, but a trade war today might be even more damaging. Letty 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. And now it is not the case that

all countries are raising trade barriers against everyone else. It's the United States that is carving itself out of global supply chains. All of that means that because most of the rest of the world is still playing nice with trade deals, American businesses could be uniquely disadvantaged by expanding tariffs in the United States. Today's episode is based on the articles who Wins and Loses in a Trade War?

Written by Patrick J. Higer and who Wins and Loses If the US imposes Steel Tariffs written by John Donovan on HowStuffWorks dot Com. Brain Stuff was production of iHeartRadio in partnership with how Stuffworks dot Com and is produced by Tyler Klang. Four more podcasts my heart Radio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows.