President Trump wants the United States to “win,” but his administration has yet to articulate what winning looks like with respect to international trade.
There’s an old saying in sports often erroneously attributed to famed Green Bay Packers head coach Vince Lombardi, the man for which the NFL championship trophy is named: Winning isn’t everything; it’s the only thing.
When it comes to international trade policy, President Trump has made it clear that he wants the United States to “win,” railing against what he considers to be unfair trade practices on the part of our closest trading partners. At the same time, however, the Trump administration has been far less clear about what “winning” actually means in the context of international trade.
China, the EU, Canada and Mexico, among others, have been vocal in their opposition to recent U.S. tariffs, labeling them “protectionist bullying” and the first shots in a “trade war,” and all four have filed dollar-for-dollar retaliatory measures in response. Those terms make for great headlines, but in this particular case, the “trade war” analogy is fundamentally flawed in that — generally speaking — armed conflicts have an end goal.
In an actual war, fighting continues until either one party is defeated or surrenders, concessions are made by the losing side and peace treaties are signed in an attempt to ensure the conflict does not resume.
But in a trade war, the defeat of any adversary would be disastrous for all parties. If, for example, economic growth in China were to sputter and stall out, it could throw the global economy into recession.
Similarly, a protracted escalation of tariffs by the United States and its trading partners could have dire consequences for the supply chain and logistics industry and shippers engaging in cross-border trade, as higher prices for imported goods both at home and abroad would almost undoubtedly put a damper on global trade volumes. A downturn in volumes would mean fewer boxes for cargo carriers to move, lower volumes at ports and so on and so forth.
Although this might translate into lower per unit shipping costs for importers, that will in most cases be more than offset by the increased cost of the goods themselves. And let’s not forget the precarious financial situation the ocean carriers find themselves in at present. Analysts are forecasting the industry to break even at best in 2018, and that outlook faces considerable downside risk in the form of a trade war, which by one estimate could take as much as 1 percent of global container volumes — roughly 1.8 million TEUs — out of the market.
Complicating matters further for shippers and freight transportation providers is the fact that they have no way of knowing exactly how many products will ultimately be targeted and how long the tariffs will remain in place.
All this begs the question: Given what the United States and the global trading system as a whole stand to lose in a trade war, what do we stand to gain from winning? And on an even more basic level, what does victory look like from the standpoint of the Trump administration?
Trump and members of his administration have at various times indicated that the primary objective in raising import tariffs is ensuring national security and safeguarding intellectual property rights; protecting American workers and boosting employment, specifically in manufacturing; reducing or eliminating tariff barriers for U.S. exports; or reducing or eliminating the nation’s trade deficit.
From the president’s perspective, winning the so-called trade war could in reality mean accomplishing one of these goals or it could be all four at once.
If the goal is to get trading partners to bring down all tariffs and other trade-related barriers, the early indications are that it will be a tough — and lengthy — battle. What’s more, these kinds of negotiations have in recent years been handled via free trade agreements like the ones Trump has derided as “terrible deals” for the United States, e.g. the North American Free Trade Agreement (NAFTA),theTrans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).
At least in the short term, the tariff measures imposed by the Trump administration have resulted in the erection of more barriers to U.S. exports in the global marketplace, not fewer, but the question of whether his tactics will ultimately be effective is largely irrelevant until we learn what he actually intends to accomplish.
In the long run, even if winning isn’t everything, Trump’s definition of winning might be the only thing that matters when it comes to the future of international trade policy in the United States. As such, shippers and carriers would both be wise to put alternative supply chain plans in place should tariffs continue to escalate.
Commentary: Terms of trade engagement
