WATCH: Will the Trump Trade Tariffs Ignite a Trade War?
Eswar Prasad, a senior fellow at the Brookings Institution, discusses the Trump tariffs. Although the president hopes these new tariffs will stimulate growth in the steel and aluminum industries, Prasad noted, they could potentially incite a trade war between the United States and its strongest allies.
“A trade war is essentially an escalating set of tit-for-tat trade restrictions,” he said. “Ultimately, no one wins a trade war.”
Trump’s tariffs have been driven by a desire to do something about high US trade deficits. “The correct way to view a trade deficit is not as simply a country losing out,” Prasad explained, “but rather as a combination of macroeconomic factors and policies that drive consumption and investment decisions. If an economy consumes more than it produces, than it is going to have to import goods from the rest of the world and it runs a trade deficit. A trade deficit is not necessarily a bad thing because it means that consumers are consuming more and there is more investment happening in the economy.”
As far as the US steel and aluminum industries, factors such as automation have been driving down employment. “Though the tariffs will certainly help the steel and aluminum industries increase profits and increase output to some extent,” said Prasad, “they will probably not bring back lost jobs in these industries.”
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