President Donald Trump formally declared a new era of American trade wars on Friday, spooking investors, exasperating top advisers and enraging U.S. allies.
In an early morning tweet, Trump cast off decades of consensus that trade wars damage the U.S. economy and hurt more workers than they help, embracing a strategy that many scholars believe helped deepen and extend the Great Depression.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump tweeted. “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
The stock market, which plunged following Trump’s announcement of steel and aluminum tariffs on Thursday, continued its descent Friday morning. The Dow dropped over 300 points shortly after the opening bell on Wall Street, adding to a 420-point decline on Thursday.
Trump’s trade war tweet came the morning after the president rebuked his Treasury Secretary Steven Mnuchin and National Economic Council director Gary Cohn, siding with economic nationalists in his administration and announcing plans to impose steep 25 percent tariffs on imported steel and 10 percent in imported aluminum.
The decision led Cohn, the former Goldman Sachs president viewed as the main check on Trump’s protectionist impulses, to threaten to resign, according to two people familiar with the situation. And it had Treasury officials scrambling to reassure U.S. allies while monitoring the market fallout.
One person close to Cohn said Friday that the NEC director was at work in Washington and had a “smile on his face.”
The formal declaration of tariffs and Trump’s robust embrace of trade wars spooked investors who fear who fear that while a few steel companies may benefit, consumers will face higher prices, trading partners will retaliate and manufacturers who rely on imported materials, including the auto industry, could suffer, perhaps severely.
“The idea that you can somehow win a trade battle by mutual impoverishment is just counter to economic consensus and decades of history,” said Scott Lincicome, a trade attorney and adjunct scholar at the Cato Institute. “Going back 100 years and even dating to the Civil War, you look at the academic analysis of protectionism and the results are pretty much uniformly the same. You have far more costs than benefits and those costs are borne not just by consumers but by American companies and farmers and exporters.”
Immediate market reaction offered a snapshot into the potential fall-out from increased protectionism.
Shares in steel companies rose following Trump’s announcements but shares in companies that use imported steel and aluminum – from automakers like Ford and GM to aerospace giants like Boeing – fell sharply.
American allies including the European Union and Canada immediately scorned Trump’s decision on steel and threatened retribution. Republicans on Capitol Hill also sharply rebuked the president.
“Kooky 18th century protectionism will jack up prices on American families – and will prompt retaliation from other countries,” Sen. Ben Sasse (R-Neb.) said in a statement on Friday. “If the President goes through with this, it will kill American jobs – that’s what every trade war ultimately does. So much losing.”
The chaotic process that led to Trump’s tariff announcement also portrayed an increasingly isolated president – besieged by scandal and losing some of his most trusted aides – clinging to an issue he has pushed for years and that he believes helped him win the White House.
But to advisers including Cohn and Mnuchin as well as Republicans across Capitol Hill and in corporate America, Trump’s decision to fully embrace protectionism threatens the two things actually going well in his presidency, a strengthening economy and rising stock market.
“His braggadocio about his effect on the stock market has been undercut by events of his own doing,” David Kotok, chief investment officer at Cumberland Advisers wrote in a client note Friday morning. “He is losing his staff. He is isolated and beleaguered. And in the midst of crisis he tosses an ill-thought-out bomb called protectionism that punches out the best of our allies and friends while it strengthens our nation’s adversaries.”
Cohn, Mnuchin and other free-trade advocates inside the White House argued for months that embracing tariffs and ripping up free-trade deals would threaten a stock market rally that Trump until recently loved to boast about.
For a while, the argument worked, helping keep the president from unilaterally ending the North American Free Trade agreement and a separate pact with South Korea.
But at least as of Friday, it appeared the argument no longer swayed the president. Trump issued his latest trade war tweets even after the sharp market decline on Thursday. And White House press secretary Sarah Huckabee Sanders on Friday morning said the president was not worried about the market declines.
“The president’s still focused on long-term economic fundamentals,” she said. “He is incredibly focused on the American worker. It’s something that we have to have and something we need to have.”