History doesn't teach us as many lessons as we'd like. And the ones it does teach us are often bad. However, it does teach us that tariff wars are lost. They are lost by both sides. In fact, they are wars of resistance, in which both sides hope to outlast the other. Inevitably, the winner is a third party.
There is a very important precedent. The Great Depression of the 1930s was born from a stock market crash (1929) that was not addressed by the US Federal Reserve and a response by the US Congress in the form of increased tariffs (1930) to compensate for internal impoverishment. Everyone stood still in the face of the trade embargo imposed by the richest country on the planet, the only one that could pull them out of the impoverishment suffered during the Great War, and it was inevitable that they had to respond with tariff increases against it. The vicious cycle of blows and counterblows impoverished everyone and was only halted by drastic changes in the governments of the world's major countries, starting with the United States itself. The grave mistake of the 1930 tariff retaliation, the Smoot-Hawley Act, passed with solid political support but causing far more damage than anyone could have imagined, starting with the Americans themselves, is currently being taught in every university. President Trump is already heading down a dead end that closely resembles that of President Hoover in 1930. Behind this lies a complete misunderstanding of the virtues of trade, including international trade. We can see how the mercantilists viewed it, who believed that what one partner gains, the other loses. This is a belief held by those who have always conducted transactions with this vision. It should come as no surprise that lifelong Republicans, economically liberal, are horrified by Trump's policies.
In our country, we have some good examples of the benefits that can be obtained from other people's trade wars. When France and Italy engaged in a trade war between 1888 and 1892, which had already been brewing for years, all neighboring countries, including the Kingdom of Spain, benefited by exporting much more to France, especially, and to Italy. In Catalonia, the "gold rush" had been going on for a few years before, but the wine-growing boom was prolonged thanks to the tariff conflict between the two major wine producers.
Boycotts between countries are also trade wars. Boycotts have been widely abused as a peaceful substitute for wars. However, boycotts tend to strengthen who is in power in the boycotted countries. Politically, it is very easy to generate a closing of ranks around the government of a state that has been boycotted. This is well known by the dictatorships that have suffered trade boycotts in recent years: be it Russia, Iran, South Africa, or Cuba, to name well-known examples. In each of these countries, the boycott has not weakened those in power, but rather strengthened them and justified emergency measures to concentrate power. This also occurred in Franco's Spain after World War II. The boycott becomes politically useless. It turns against the person who carries it out.
That the trade boycott or tariff war is carried out by politicians who call themselves "liberal" in economics is more than shocking. In fact, it demonstrates that liberals are nothing at all. They are pure populists and, as such, think little (or believe that everyone thinks little). We are probably dealing with politicians with authoritarian impulses justified by their populism, which places great urgency on quickly resolving emerging problems with simple solutions, even if the solutions are far from straightforward.
Starting a trade war when you happen to have a large surplus in the services or capital balance is a sign of a profound misunderstanding of how an economy works. It's normal for the most advanced economies, with higher wages, to end up exporting more services than goods, to the extent that the most advanced technologies and the most sophisticated human capital can be used as an indispensable input for the production of highly demanded services (digital platforms are the prime example). This is the daily routine of international trade. Furthermore, they export a lot of capital and earn huge returns thanks to the returns on their investments.
It shouldn't surprise us at all, on the contrary, that those who are threatened by a tariff war hurry to answer. Your country may lose money, but the ruler will surely win elections or consolidate his power if he defends himself with a strong commercial or political attack. Some of the world's poorest countries have suffered wars or trade boycotts, but their rulers haven't lost power. I don't think that's what Trump wants, but it will be the response he will encounter.
