Barclays: Trade Wars Are Economically Costly But "Smart Politics"

In a note published overnight, Barclays explains what may be the primary motivation for Trump to keep pushing through with his desire to impose import tariffs despite getting substantial pushback from both Republicans and (now former) members of his advisory circle.

As Barclays strategist Aziz Sunderji notes, amid declining employment in manufacturing and stagnant wages, a portion of the American electorate has become more skeptical toward free trade, and as a result "Politicians from both parties have channeled that skepticism."

Aziz then notes the asymmetrical gains/losses that make declarations of trade wars often times desirable: according to the Barclays strategist protectionist rhetoric can be a useful political strategy, because while the benefits of free trade are widely dispersed among many, the beneficiaries are likely to protest only mildly to protectionist measures. Meanwhile, the costs of free trade tend to be acutely borne by a few, with whom protectionism resounds strongly.

It is this relatively modest group of people that Trump is targeting.

It is worth noting, however, that Trump’s approach is a notable departure from the norm for a Republican according to the British bank:

President George W Bush raised tariffs on steel, too, but as his trade representative Robert Zoellick explained, these were used merely to create coalitions and manage political support in the US amid a broader move toward increasingly free trade (see “The US Admits That Politics Was Behind Steel tariffs”, New York Times, March 2002).

On the other hand, antipathy toward free trade is especially strong among Republican voters. Only 36% agree that free tree trade agreements have been good for the US, down from 57% in 2009 (Pew Research Center).

So going back to Trump's thought process, Aziz argues that having achieved some success elsewhere in his agenda (tax cuts, deregulatory efforts, conservative judicial appointments), "the president may now be willing to engage in more controversial measures such as tariffs."

In the case of steel and aluminum, the president may be emboldened by the Commerce Department’s report that justified tariffs on economic and national security grounds. This strategy may not work, though. The steel and aluminum manufacturing industries are smaller employers than the industries that use these metals as inputs (Figure 1).

Barclays concludes that Trump's strategy may backfire in the long run, and over time, "tariffs may be deleterious to regions where Trump enjoys  strong support. Indeed, many Republican leaders have urged the president to reconsider."

Things could get more complicated, of course, if the initial round of tariffs progresses into full-blown trade war. Here's Barclays:

A single round of tariffs and foreign retaliation does not constitute a trade war. For that, further measures from the US would be needed. We think President Trump likely favors such further measures.

We think this for two reasons. First, because of the political considerations we described above: the unpopularity of free trade among his political base and his apparent view that these actions will help the GOP in the November mid-term elections. Second, due to the economic reality that, amid fiscal stimulus from the tax cut and higher budget caps heating up the domestic economy and boosting imports, the US trade balance is likely to worsen.

The president has faced substantial friction on these tariffs within his party. However, in terms of domestic law, the president has wide-ranging powers to restrict trade unilaterally. Any president can, through executive authority, impose unilateral sanctions on any country that violates trade agreements or engages in other “unfair” trade practices. The definition of “unfair” is subject to broad interpretation, as the law is designed to give the president considerable discretion. In terms of international law, protectionist measures the US takes can be challenged at the WTO. President Bush’s steel tariffs were ultimately reversed after trading partners mounted such a challenge successfully. But these take time, and WTO rulings have  sometimes been ignored. Furthermore, President Trump could continue to levy tariffs on national security grounds, which have not been challenged successfully in international courts.

The good news is that, if this morning's press reports are correct, the speculation over either the announced tariffs or the imminent retaliation won't take too long as Trump is said to formalize the first round of the trade wars tomorrow. Whether or not this proves to be a prudent and tactical political move remains to be seen.

Photo courtesy of @victorleonardib



Rick Cerone Wed, 03/07/2018 - 11:15 Permalink

Barclays believes trade deficits don't matter.

They probably don't to those assholes.

They mean a lot to the middle class living on 3rd world wages.

TheSilentMajority Rick Cerone Wed, 03/07/2018 - 11:23 Permalink

Why don't the MSM and “experts” admit that Murica already lost the trade wars years ago, as evidenced by the massive yearly trade deficits and huge tariffs on murican goods overseas?

Murica has nothing to lose, and everything to gain by instilling recipricol tarrifs and rewriting lopsided trade agreements that were signed by tumps traitorous predecessors.

ROW should be very afraid.

In reply to by Rick Cerone

johnnycanuck Rick Cerone Wed, 03/07/2018 - 13:06 Permalink

Maybe not.

"This brings us to the events of the past few days. According to a Quinnipiac University poll released on March 6, only 31 percent of Americans approve of President Trump’s decision to impose a 25 percent tariff on imported steel, while 50 percent disapprove. The prospect of added costs for consumers reduces public approval to 29 percent.

Not surprisingly, the president’s move divided the public along partisan lines, with 58 percent of Republicans but only 11 percent of Democrats approving. Independents, whose views could prove decisive in the midterm elections, disapprove by a margin of 55-28. And the response in Mr. Trump’s base—whites without a college education—is lukewarm, with 44 percent approving and 38 percent disapproving."…

In reply to by Rick Cerone

LawsofPhysics Wed, 03/07/2018 - 11:18 Permalink

Currency wars > trade wars > real (shooting killing) wars...

What the fuck ever.  All wars are bankers wars!

Will humanity allow these useless, overcompensated fucking middlemen to kill people off again? I guess the real question is do you still accept paper/digital promises in exchange for the real products of your labor?

Why do you have to face real risk and do real work (consume energy and resources) when the fuckers in banking and finance can access as much currency as they want with no real risk, no real work, and no new collateral requirements?

Oh well, stupid is as stupid does.

"Full Faith and Credit"

same as it ever was!

BandGap Wed, 03/07/2018 - 11:18 Permalink

This isn't about trade or jobs. It's about building a war time economy.

If a country can't make it's own high ended steel and aluminum parts for war machines then they are not in the game.

Everyone can hide behind the dialog but the reality is the US has to regain at least some of it's lost manufacturing base, particularly when it comes to defense (OK, offense too) production. All the rest of this talk is total bullshit.

Michael Musashi BandGap Wed, 03/07/2018 - 11:33 Permalink

No, it's about surviving in a war we've been losing with China for a long time. China is a beast. China doesn't care about "climate change." China doesn't care what Rachel Maddow says. China controls its media. China doesn't give a shit about Google, Facebook, or Twitter. China doesn't give a shit about its host country, its laws or regulators. China plays by its own rules and pays off anyone and everyone. It's about time someone stands up to them! The EU is a bunch of pussies, and Japan is afraid to sink to China's playing field because of what the US would say. Trump, or at least someone in the man's ear, understands what's happening. 


I personally lived it. When I was working in SE Asia we lost dozens of bids to Chinese companies. Why? Because no one can beat these fuckers! The playing field is not level, China knows it, and takes full advantage. They are wrecking the global economy one bid at a time. It's about time someone does something, and clearly Trump is at least listening to the those people.

In reply to by BandGap

BandGap Michael Musashi Wed, 03/07/2018 - 11:40 Permalink

In the coming months it will be exposed that the Obama/Clinton machine awarded contracts to Chinese companies for the manufacture of defense components for the US military.

China makes shit steel, China makes shit aluminum. I have seen both used in industry and they make crap. And they are making US defense parts. That has to stop.

Sorry about your experience.

Need to gear up Gary/Hammond and the Pittsburgh/WV panhandle again.


In reply to by Michael Musashi

GreatUncle Michael Musashi Wed, 03/07/2018 - 11:42 Permalink

Can't see and difference you have pointed out between East and West.

The reason you can't beat the fuckers is the wage levels and indirect costs like corruption embedded in the US economy.

You will not beat them neither unless you can offer equivalent price comaprisons.

Not a chance ... to do so blows the US economy out of the water as too expensive.

In reply to by Michael Musashi

JoeTurner Wed, 03/07/2018 - 11:23 Permalink

It's always ironic to have some Wall St. d-bag, who makes $millions/year, lecturing us peasants as to why we are too stupid to understand that being poor and unemployed is actually beneficial !

Blue Steel 309 Wed, 03/07/2018 - 11:24 Permalink

Real wealth comes from production. America has none.

If you want real wealth, you have to protect the American worker and force production to occur IN AMERICA. This is not rocket scientistry.


These sophist international fucksticks are looking at upcoming quarters so as not to address the real issue of long term economic benefits. America will last a lot longer than any executive's career at a usury based firm like Barclays.


America was built on tariffs.

onthedeschutes Wed, 03/07/2018 - 11:33 Permalink

Barclays is missing the big picture.  This is a war between the globalists and the nationalists.  The ultimate goal of the globalists is enslavement of the masses.  To achieve that end, they need to first eliminate wealth disparity among the countries.  That means the US standard of living must fall while other nations must rise.  That is why the US has had disastrous trade deals for the past 30 years.  Trump, a nationalist, is calling them out on these bad trade deals which have wiped out US manufacturing and destroyed the middle class.  The globalists are pissed about being exposed.  The FED is a central tool in the globalist toolbox.  Not hard to also understand the globalists need to disarm the American public.  Because once the public wakes up to what is happening...the globalists do not want to start dodging bullets.   This is why there have been so many "shootings", and the globalists main stream media have been in all out assault mode on the second amendment.    This is what's really going on.  All these articles here and there from one banker, or one trader, or one's all theater.  The big picture is all that matters.  The globalists are coming and they are taking advantage of a dumbed down society that is overworked, just trying to survive and make ends meet.

MusicIsYou Wed, 03/07/2018 - 11:52 Permalink

Trump's president because the waitress politicians weren't being good waitresses. How many times are going to visit a restaurant if the waitress keeps telling you what you're going to order?

MusicIsYou Wed, 03/07/2018 - 11:57 Permalink

Here's a thought. How does someone know they're a globalist if everybody is a globalist?  How would you know you're a Conservative if everybody was a Conservative? We can find out: lets put 100 Conservatives on an Island, and see how long it takes them to start labelling liberals in order for them each to feel a significance in themselves.

MusicIsYou Wed, 03/07/2018 - 12:09 Permalink

If you walk around accusing many people of being a globalist, you're probably a globalist. Yep, and 5 minutes later you're thinking about a new's article about Kim Un and thinking to yourself "Lets go flatten his fatass." Yep, that's because you're a globalist.

gunzeon Wed, 03/07/2018 - 12:10 Permalink

Fig 1 ? employment by sector ? about 12m people are accounted for, wtf are the rest of them doing ?

( If that's all then it's small wonder they're goin broke )


Drop-Hammer Wed, 03/07/2018 - 12:45 Permalink

It is simple.  I will spell it out so that jews (who will not care anyway and continue to undermine us goyim) and their useful idiots.  To wit:  America First!  MAGA!

A man who neglects his own family to provide charity to others is no better than the pagans-- paraphrased from the Bible.  I was too lazy to Google the exact quote.

snblitz Wed, 03/07/2018 - 13:40 Permalink

Most of these articles are full of useless information and content free generalizations.

Look at these numbers: auto import tariff: US 2.5%, EU 10%, China 18%+

How are these numbers fair?

And what does fair have to do with it?  Only Americans think in terms of "fair".  The EU and China are very happy with their 10% and 18%+ tariffs.

The people throwing out all the disinformation main interest is in keeping the gravy train of exploiting the American consumer for their own benefit.  That includes American politicians with foreign interests via their family members and foreigners and their governments.

Please wake up to your exploitation and work to stop it. Stop voting for incumbents.

Shahna Wed, 03/07/2018 - 15:56 Permalink

Who pays the tariff?
You do. You the consumer who is buying the product.

Who do you pay it to?
Your government. Yeeup! YOU pay it to your gubmint.

So if Germany puts a 10% tariff on your cars and you put a 2.5% tariff on German cars who wins? You do - the American consumer.

Tariffs are tax that just sounds like you aren't being screwed.
Your "just print more" machine is running down so your govt is collecting the difference from you because there's nowhere else to get it from. Trump said he would "just print more!" Remember that? Well - how many times have you heard him say it since he sat his butt in that fancy chair??

You don't have a $800B trade deficit because you have lower import tariffs. You have it because you farmed out your manufacturing to places like China! Didn't matter when you did 'cos in those days you had more "just print more" than you knew what to do with. What did that do? It shot your cost of living thru' the roof - so now everyone else undercuts you. And NOW, it matters - 'cos good ol' "just print more" is running down.


In if you don't believe me then next time you go shopping take a good browse and see how many products are marked : "Made in the USA."

Let it Go Wed, 03/07/2018 - 18:56 Permalink

America must wake-up. Trade policy has massive long-term ramifications on the strength of a nation's economy. Often people fail to note the difference between free and fair trade. In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue.

Developing a long-term sustainable economic system that is balanced would contribute to both global cohesion and the world economy. The article below is in response to a slew of comments from my recent article titled, "Higher Prices On Import Goods A Fair Cost For Jobs". Today many people supporting past trade agreements mistakenly use low consumer prices as a battle flag around which to rally.

 http://Free Trade And Fair Trade Are Very Different.html