Paul Krugman:

Oh, What a Stupid Trade War (Very Slightly Wonkish), by Paul Krugman, NY Times: So, the trade war is on. And what a stupid trade war it is. …

The official – and legal – justification for the steel and aluminum tariffs is national security. That’s an obviously fraudulent rationale... But Trump and co. presumably don’t care about telling lies with regard to economic policy... They would see it as all fair game if the policy delivered job gains Trump could trumpet. Will it?

OK, here’s the point where being a card-carrying economist gets me into a bit of trouble. The proper answer about the job-creation or -destruction effect of a trade policy – any trade policy, no matter how well or badly conceived – is basically zero. ….Why? The Fed... Even if tariffs were expansionary, that would just make the Fed raise rates faster, which would in turn crowd out jobs in other industries...

But I think this is a case where macroeconomics, even though I believe it’s right, gets in the way of useful discussion. We do want to know whether the Trump trade war ... would add or subtract jobs holding monetary policy constant, even though we know monetary policy won’t be constant.

And the answer, almost surely, is that this trade war will actually be a job-killer, not a job-creator, for two reasons.

First, Trump is putting tariffs on intermediate goods…, some of which themselves have to compete on world markets. Most obviously, cars and other durable manufactured goods will become more expensive to produce, which means that we’ll sell less of them; and whatever gains there are in primary metals employment will be offset by job losses in downstream industries.

Playing with the numbers, it seems highly likely that even this direct effect is a net negative for employment.

Second, other countries will retaliate against U.S. exports, costing jobs in everything from motorcycles to sausages. …

Finally – and I think this is really important – we’re dealing with real countries here, mainly democracies. Real countries have real politics; they have pride; and their electorates really, really don’t like Trump. This means that even if their leaders might want to make concessions, their voters probably won’t allow it. ...

So this is a remarkably stupid economic conflict to get into. And the situation in this trade war is likely to develop not necessarily to Trump’s advantage.