All for market freedom. Market freedom for all.

Today I’m laughing my ass off. Not in a good way mind you, but in the way that can only be described as schadenfreude. The kind of laugh that can only come from watching a bunch of idiots fall victim to their own decisions in a way that is exactly opposite of what they intended, or in short, perfect irony.

What is it that has me laughing this morning? It is of course the announcement made this morning by the totally badass American motorcycle company Harley-Davidson, the choice of Hell’s Angels and white collar suburbanites in the throes of a mid-life crisis alike. Due to the substantially increased cost of exporting to their second biggest market, the E.U., they will be moving some production overseas to avoid the tariffs that have recently been imposed on them in response to Trump’s steel and aluminum tariffs.

Presumably, and this is just me spitballing because who really understands the thinking coming out of the Trump administration, they started this tit-for-tat trade war in an attempt to help American companies. Trump even cited Harley-Davidson specifically shortly after pulling out of the TPP when he said “We want to make it easier for business to create more jobs and more factories to be made in the U.S., and you’re a great example of that”. As is the case now, ironically that decision cost Harley-Davidson access to additional markets.

Since then, Harley-Davidson has seen their stock price steadily fall about 30%. This fall has occurred against the backdrop of a record bull run for reference. They had also announced earlier this year their intent to close their plant in Kansas City, Missouri, cutting hundreds of U.S. jobs in the process. Now it would seem those jobs will be reappearing somewhere in the E.U., and rather than making it easier “to create more jobs and more factories”, the effect of this ill-advised trade war has had the complete opposite effect.

I’d like to say I told you so… and I am totally saying that for the record, dear non-existent reader. I told you so, I told you so… oh and did I mention that I told you so? So here is another “I told you so” moment. Trump can easily right the ship by reversing course. If he does away with the tariffs, and begs the member nations of the TPP to allow the U.S. to come back into the fold, we can keep this great economy going. We can keep building factories in the U.S. because it would remain a cost effective option, unlike the current climate of tit-for-tat tariffs.  There is still a window of opportunity to avoid lasting damage, politically as well as economically. He won’t change of course because the political pressure to do so doesn’t exist, so when the economy tanks, more factories close, and unemployment begins to skyrocket I’ll be here regretfully informing anyone who wasn’t listening that “I told you so”.

When the party is over.

Yesterday the opening salvos of a new trade war began. Despite what Trump believes, trade wars are not easily won. In fact, in the end, nobody wins and everybody loses.

Consider what happens when a tariff is enacted. Overnight, the price of the affected items goes up. Since the price goes up, industries that rely on such products or commodities are now unable to afford to buy as much. Take automobile manufacturers for instance. They rely on steel to produce cars. If steel goes up in price, they cannot buy as much steel and consequently they produce fewer cars. If they’re producing fewer cars, they have need for fewer employees and will begin reducing their workforce. As unemployment goes up, fewer people can afford to buy new cars, and a vicious downward spiral of reduced employment leading to reduced economic activity begins. It doesn’t stop there either, because now that demand for steel is going south, so goes the jobs for steelworkers.

Then consider the countries who we enact such tariffs against, and how they will respond. They could slap tariffs on automobiles for instance, leading to reduced exports and further deepening the reduced need for automobile and steel workers. It’s mutually assured self destruction economically speaking.

How do we know that this is what happens? There is a whole history of protectionism, tariffs and trade wars to draw from (google the Smoot-Hawley act, which preceded the Great Depression). If the Trump administration continues to pursue protectionist policies, expect it to chip away at the record low unemployment. We may also expect it to halt the historic, decade long bull run on the stock markets. Nobody has ever won a trade war, because it’s not a winner take all, zero sum game. It’s a draw, with numerous casualties for all parties involved.