Strategy and Tactics in the Global Trade War

Strategy: A plan of action designed to achieve a long term or overall aim. Strategy guides the entire endeavor. Strategy generally won’t change unless the goal changes.

Tactic: An action planned to achieve a specific end. Tactics are methods used to achieve shorter term goals that help one accomplish an overall strategy. Tactics concentrate on specific aspects of the overall strategy. While strategies are fairly rigid, tactics are flexible and fit the situation.



From this day forward, a new vision will govern our land. From this moment on, it's going to be America First. Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength. Donald Trump, Inaugural address



Ultimately that's what you want. You want a tariff free. You want no barriers. And you want no subsidies. Donald Trump, G-7 meeting, June 2018

All this President wants is free, fair and reciprocal trade and by taking a tough stand on countries that have high tariff barriers or restrict our investment, that’s going to lead us to a better place. Peter Navarro, CNBC June 2018

Over the last few weeks the Trump administration has rolled out a new strategy on trade. Or maybe, given the chaotic nature of the administration’s approach to trade so far, it is more accurate to say the administration is now finally crafting an actual strategy. To date, the effort has been marked by an emphasis on tactics, the only obvious goal being to tout President Trump’s negotiating skills.

Donald Trump’s views on trade until this reset, were of the nativist, mercantilist variety, views long ago discredited by almost everyone in the economics profession. Free trade is one of the few areas where wide agreement is found among economists of all political stripes. Consensus, as we’ve learned in many other areas of our modern life, does not make truth but in this case the consensus exists for very good reason. Free trade is beneficial wherever, whenever and however it is practiced.

The politics of free trade are more complicated though. It is often said that there are winners and losers from more open trade. I suppose that may be true in the very short term but surely after decades of relatively free trade that effect has faded. But it hasn’t faded as a political tool, a fact easily proved by the man sitting in the Oval Office.

For those who believe that their station in life has been eroded by foreign competition the facts are mostly irrelevant. On trade, as on other issues, Donald Trump took a sliver of truth and wove it into a winning campaign message. President Trump won the presidency by resurrecting the Reagan Democrat coalition of the working class. The difference is that Reagan won them over with a positive message – America will compete and win - while Trump won them over with a negative one – the rest of the world isn’t following the rules and our politicians let them get away with it.

Trump’s answer to the Rust belt angst is “America First”. He campaigned as an open protectionist, promising to tear up what he described as terrible trade deals negotiated by previous administrations. Along with an immigration policy whose central feature was an actual wall, Trump put forth a vision of Fortress America where we would manufacture all the things we need and want. If foreign companies want in, they’ll have to pay their way or build factories here.

It was a remarkably inward-looking strategy that ignored the evolution of manufacturing over the years since middle America started losing factory jobs. There is really no such thing anymore as an American car – or a European or Japanese one for that matter. Supply chains stretch across continents not just states or countries. It also ignores the basic fact that the vast majority of the reduction in manufacturing jobs in the US was driven by technological change. Admittedly, some of that technological change was driven by more open trade but it would have come eventually in any case.

The narrative on trade now appears to be shifting. The President was the first to change the language of his trade policy at the G-7 meeting last month. He challenged the other members to agree to completely free trade - no tariffs, subsidies or other barriers. Peter Navarro then reinforced that message in a CNBC interview, emphasizing once again that the President wants free trade. Then the next day the President reiterated his commitment to free – and yes, fair - trade at a White House meeting of Republicans. Finally, Treasury Secretary Mnuchin, in another CNBC interview, also emphasized the administration’s desire for free trade.

This shift appears deliberate, an attempt to change the emphasis of the debate and cast Donald Trump as a free trader all along. A free trader frustrated that the rest of the world doesn’t reciprocate our trade benevolence, but a free trader nonetheless. The goal is now to create a more open trading system, not to close ourselves off from the rest of the world.

The strategy, in this case is to reduce foreign trade barriers to American products with the final goal of raising US economic growth. The tactic used to implement that strategy is the imposition of tariffs with countries the administration perceives as taking advantage of us in trade. Until a few weeks ago, all the emphasis was on the tactic and the goal was poorly communicated. Or maybe even completely absent; President Trump’s views on trade are misguided and not new.

Someone in the administration – and my guess is Larry Kudlow – realized that to calm the markets the emphasis needed to shift. Wall Street has an institutional memory of Smoot-Hawley and will never respond positively to any mention of tariffs. Investors needed to be reassured that tariffs are only a tactic, not a permanent part of the Trump economic agenda.

Will this new strategy be enough to keep markets calm until the administration can negotiate more advantageous trade agreements? The politics of trade are not just complicated in the US so getting quick agreement may be too much to hope for. On the other hand, if the short-term goal is to force the rest of the world to the negotiating table, that seems more likely. It was said that only Nixon could go to China. Is it possible that only an avowed protectionist can achieve global free trade?