Trump’s tariffs: Advice from a Zambian economist?

It is hard to imagine that Donald Trump would be inspired by a female Zambian economist. After all, Donald Trump called African countries “shitholes”. Yet, what Donald Trump’s recent tariffs have got a lot in common with is an argument that was suggested by the Zambian economist Dambisa Moyo. Her book How the West Was Lost: Fifty Years of Economic Folly-And the Stark Choices, could have easily been written by as a much a populist nationalist than an economist who worked at Goldman Sacs. The essential premise of the book is that the West (or America) has been in decline, that China has ascended to threaten the United States and that this threatens to change the global order from Western-oriented order to an Asian oriented order. What I find as interesting is how this book is an inspiration behind Trump’s tariffs.

At the end of the book, Moyo argues that one radical way of reducing the decline of the United States is for the US and Canada to become in her eyes an “economic trade bloc” that should be an autarky or self-sufficient economy. This would mean North America would put significant barriers to trade and movement of people to other countries. This is because she believes that having 500 million people, North America could sustain its own economy without trade with the rest of the world. This idea of America (and Canada) becoming self-sufficient sounds like the dreams of a Trumpist nationalist. Trump’s tariffs may be the tip of the protectionist iceberg.

What are the problems with Trump’s steel and aluminium tariffs? One counterintuitive argument is rather than helping manufacturing, it actually hurts manufacturing in America. When producing steel-based products, the tariffs on steel means that the prices on steel are higher. This, in turn, means that products such as cars, machinery and trucks made in the United States would be more expensive than those made elsewhere or as one article suggested, it would destroy the last keg manufacturer in the USA. It also has a strong effect on service jobs, where the cost of increased products has a knock-on effect on employing people. One study pointed out that the net loss of jobs could be as high as 145,000.

The other problematic issue with Trump’s tariffs is one of international politics. Trump’s tariffs have alienated allies of the US. South Korea, Canada, Japan, Mexico and Germany are all major steel exporters to the USA, whilst Canada is also a large exporter of aluminium to the USA as well. Trump’s tariffs have alienated foreign countries, isolating the USA on the international stage. This gets back to the issues of isolationism and the views expressed by Moyo in How the West Was Lost. Isolationism and economic nationalism does not strengthen a country but ultimately weaken it by reducing the number of allies a country has and reduces the amount of trade and hence the size of the economy a country has. Reducing the size of GDP a country has and ultimately you reduce the size of its power.

Nationalists seek to create a strong, powerful, resurgent country but in adopting economic protectionism they ultimately weaken the country they seek to revitalise. A far better stance is improving the research and design and scientific prowess a country has, which will help create a stronger powerful country, whilst investing in infrastructure and public services will help create a strong united country overall.

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