A lot of market commentary sees tariffs and the trade war as temporary events. A U.S.-China trade deal, the thinking goes, will sound the "all clear" signal for markets and the economy.
But there are indications that we may be in for a longer, more protracted set of trade battles: a Forever Trade War that could last the balance of the Trump administration.
- U.S. steel tariffs remain in place even after the U.S. signed a new trade deal with Mexico and Canada on Sept. 30.
- The administration wants to retain the ability to slap punitive tariffs on China permanently as part of a new trade deal.
- The administration is moving to institute $11 billion in tariffs on European aviation imports, and there are concerns that the next step is tariffs on European auto imports.
All this may still add up to the idea that the Trump administration sees tariffs as a negotiating tool to get what it wants. The tariffs will then go away when goals are achieved.
But they just as easily add up to the opposite: an administration that wants some form of permanent tariffs in place and continued trade battles. The president, after all, has called himself a "Tariff Man."
"We see an escalation of trade tensions as an important risk," Gita Gopinath, chief economist for the International Monetary Fund, told CNBC. "Though there has been improvement between the U.S. and China and a possible agreement in the near future, we are worried about trade tensions escalating in other sectors, like the auto sector."
Bank of America Merrill Lynch global economist Ethan Harris has said he expects trade wars to continue over different issues and with different trade partners, even if there is an agreement with China. "The trade war is not going to go away during President Trump's tenure in office. I think it will go through periods of hot war and cold war," he said.
There are economic and political reasons why markets should think about hunkering down for a long trade war.
On the economic front, the question is, what exactly does the administration hope to achieve on trade? If the goal is to use tariffs as a negotiating tool to force countries to eliminate unfair trade practices, then it's right to think of them as temporary. They would be removed once trade deals are struck. This, of course, has not yet happened with Mexico and Canada, and what happens with these tariffs will be an important measure of administration intentions.
But what if the goal is the longer-term objective of reviving U.S. manufacturing?
If the target is giving U.S. industries protection to redevelop and gain market share back from China and other low-cost competitors, temporary tariffs won't do it. Leaving aside the debate about whether that's possible, it's clear such a revival requires substantial investment and time. Capital will only flow to these industries if it believes its protections from cheap foreign goods is permanent, not temporary.
And if the president's goal, as he has said, is reducing trade deficits, then reducing imports, in part with the help of tariffs, would have to be part of that equation.
Politically, the question is whether trade peace or trade wars better serves the president. It's possible the president in pursuit of reelection turns to his base and says, "Mission accomplished." It's just as possible he finds it more beneficial to be in a continued pitched battle with U.S. trading partners.