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US Economy: Tax reduction=increased national deficit+tariffs on foreign steel and aluminium = bad economics

President Donald Trump fired the first shot in a delusional and destructive trade war: tariffs of 25% on steel and 10% on aluminum. Shares of US Steel jumped 5.75%, about $460 million in market capitalization, but the overall US stock market capitalization fell by more than 1%, around $340 billion

The trade wars of the early 1930s helped to trigger, then deepen and prolong, the Great Depression.

CNN's Jeffrey Sachs reports: "Trumps actions are based on three primitive fallacies. First, Trump thinks that America runs trade deficits with countries like China and Germany because the US is being swindled by them ".

"The real reason is that the US saves too little and consumes too much, and it pays for this bad habit by borrowing from the rest of the world. The Trump theory of international trade is like a man in deep debt who blames his creditors for his spendthrift behavior".

"Come to think of it, that is precisely how Trump has spent his whole business career: over-borrowing, going bankrupt, and blaming his creditors.

"Second, Trump thinks that trade barriers will protect the US. Nonsense. These measures might temporarily protect US Steel, but not US society. American consumers will lose. US businesses that buy steel will also lose because now they must pay higher prices. American export competitiveness will suffer as production costs rise.

"Third, Trump believes that US trade barriers will crush China and sustain American global economic and military dominance. How pathetic. China and Europe will surely retaliate. American companies will face reduced access to China's fast-growing market. China will shift its own exports to other markets, especially towards fast-growing Asia, as well as towards Africa, Europe, and Latin America"

Within one day, other countries announced their displeasure and in some cases, their intention to retaliate. The European Union Trade Commissioner Cecilia Malmstrom stated that the EU would have no option but to respond. "Imposing sweeping measures like this is generally not the way forward. We risk seeing a dangerous domino effect from this.".

Trump is making these primitive errors because he hasn't a clue as to how the world economy works and how to deliver on his promises to raise US living standards. Raising US living standards requires long-term investments in education, research and development, environmental sustainability, and infrastructure.

But for Trump, it's always gimmicks and lies: tax cuts and increased budget spending that are paid for by rising public debt. Federal budget cuts on science, advanced technology, and environmental safety that leave the US less competitive and highly vulnerable to hurricanes, floods, and forest fires. And reckless trade wars that will harm US competitiveness and trigger global retaliation.

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