If war is hell, America's current trade war isn't even heck. The economic impact just isn't dramatic enough to warrant the term "war," even counting President Donald Trump's recent escalations with China and Mexico.
Which is not to say that Trump's paint-by-tariff approach to foreign policy is somehow benign. Trade wars tiffs have real economic consequences. They drive up prices, because foreign companies hit with tariffs pass part of the cost on to consumers. Then, when other countries retaliate with tariffs of their own, U.S. exporters suddenly have to pay to enter what was a free market.
There's something excessive (dare I say unhinged) about the constant predictions of doom.
But there's something excessive (dare I say unhinged) about the constant predictions of doom and the tragic anecdotes about failing farmers and struggling businesses.
The heightened tariffs against China — which now place a 25 percent levy on $200 billion worth of different consumer and manufacturing products — are expected to cost the average U.S. family $831 per year. Add in the recent threat of a 5 percent tariff on goods from Mexico and family budgets will have to absorb another $130 or so of rising prices, for a total annual tariff cost of around $1,000 per household. That's not nothing, to be sure, but consider that it's roughly the same size as the average tax benefit households got from the 2018 Republican tax cuts, which polls suggest many Americans didn't even notice.
Setting the cost of tariffs alongside the benefit of tax cuts is helpful in another way, as a reminder that at root, tariffs are really just another tax — not unlike a sales tax. So Democrats who hope to pay for a future health care expansion or climate change initiative with moderately sized tax hikes shouldn’t be so quick to decry the economic cost of Trump's taxes-in-the-form-of-tariffs.
Yes, it’s still possible the economic harm from Trump’s trade tiff will someday explode — if Trump boosts Mexican tariffs to stratospheric levels or pursues future tariffs against the E.U., or if China makes drastic moves such as cutting off access to rare earth minerals and blacklisting major U.S. corporations. But there’s a reason China hasn’t already retaliated with maximum force despite its threats: It’s costly. Blocking sales of rare earth minerals, for instance, could allow smaller suppliers to widen their hold on the market (as happened in 2010, the last time China tried it.) More generally, Trump has been in office for two and half years now, with plenty of tariffs to show for it, and these kinds of spiraling costs just haven’t materialized.
Don't believe me? Take a closer look at the folks often considered most vulnerable to the U.S.-China spat, and the only group to get an explicit bailout: namely, farmers.
Despite what you may have heard, the U.S. farming economy hasn’t collapsed since tariff threats become a global reality when Trump began expanding them last year. Which is not to say U.S. farmers have been unaffected, only that losses have been fairly contained. For instance, while agricultural exports to China fell a staggering 63.6 percent in 2018 — from $16 billion to $6 billion — total agricultural exports dropped just 4.5 percent as U.S. farmers significantly increased sales to Vietnam, Egypt, Argentina and the Netherlands.
Farmers' incomes in 2018 held up even better, with total cash income from crop sales dropping only 1.3 percent. Among soybean farmers, who rely heavily on exports to China and have been held up as the poster children for imperilled industries, sales revenue actually rose ever so slightly.
Now you may be thinking: “A 1.3 percent drop in income and a 4.5 percent decline in exports doesn't sound like a very good outcome." And you'd be right. But the point is not to suggest that the trade war is somehow beneficial or immaterial, just that its costs have been widely exaggerated.
Consider this chart showing total income from agricultural crops going back to 2012. If you squint you can probably see last year’s dip, but you’ll also note that it doesn't compare to the losses in 2015 — when cash receipts fell 11 percent after a sudden downturn in global prices tied to a rise in the value of the dollar. That’s nine times as large as the drop in 2018.
Somehow, despite the damage, the 2015 collapse in farm prices didn't break through to the public consciousness. Partly that's because it's a less stirring story, an abstract tale of currency markets and global commodity prices. Whereas now we've got the saga of a renegade president wielding old-fashioned policy tools as if spellbound by their power and heedless of the risks. Plus, tariff battles allow for a marked rendering of cause and effect: By taxing imports from China, we push prices up in ways that hurt consumers; China responds by taxing our exports, which hurts U.S. farmers.
Trouble is, good stories aren't always true stories. Check inflation and it turns out prices haven't really gone up that much. Look at USDA data and farmers seem to be doing all right. Despite the ominous talk, global markets have demonstrated some real resilience, giving consumers and manufacturers lots of windows to use when their main door closes. Soybean market collapsing? Farmers aren't doomed to suffer; they can seek out new markets or switch to other crops (which they did, on both counts).
For now, the greater concern is that this fake trade war pushes us toward something like a real war: a more naked contest for power.
Could the economic situation still deteriorate? Sure. Maybe even precipitously if the size and scope of the tariffs are doubled or tripled. At some tariff level, the U.S. auto industry would truly be decimated in a way that the agricultural industry hasn't been. But remember, the existing moves were supposed to be crippling, and they've turned out to be toe-stubbing. (And there are signs that other actors might conspire to keep tariffs from reaching these levels.)
For now, the greater concern is that this fake trade war pushes us toward something like a real war: a more naked contest for power that isn't primarily about taxes but about espionage, cyberattacks and other defiant moves by the globe's two great powers. Which means the counterintuitive key to understanding the real risks of Trump's trade tiff is this: Don't follow the money.