Fiddling with Tinkertoys

George Will, a long-time conservative voice, penned an editorial called “Trade war shows the reality of ‘America First’ in action” that should be required reading. Three quotes from the article will give the gist of his concerns. The title of this post will reveal itself in the final quote.

“The Wall Street Journal reports that US farmers are purchasing fewer farm machines – (John) Deere’s profits from this business are down 24% from a year ago – partly because farmers’ incomes have suffered as a result of the tit-for-tat trade spat that Trump started with China…Some good news for John Deere might be ominous news for US farmers: Equipment sales to Brazil and Argentina are up, perhaps partly because China has increased purchases from those nations’ farmers, who are American farmers’ competitors.”

“The Financial Times recalls that ‘hundreds of US companies and trade associations said in a joint communique in June that the proposed duties would cause the loss of two million jobs and reduce US economic output by 1%.’ ….Hence, Trump’s tariffs make US goods more expensive, thereby dampening US consumer activity.”

The final quote contrasts the up and down tariffs to a similar fiddling in 1937-38 which caused a “recession within (the) Depression.” During that period, capital went on strike flinching from the unknown. Will notes the similarity to Trump’s trade war, “They fiddle with global supply chains, as though the world economy is a Tinkertoy that they can pull apart and reassemble with impunity.”

In short, when the supply and sales chains ¬†are unsettled, companies find other avenues. Using the first quote as an example, China started buying product from farmers in other countries like Brazil and Argentina while “cancelling the purchase of almost 500,000 metric tons of soybeans from US farmers.”

Tariffs are unwieldy tools that have much greater consequences than intended. Using a tennis analogy, they are an unforced error. The tariffs have forced companies to find other options. And, when the tariffs are waived at some point, it is hard to put those Tinkertoys back in the same slots.