The false pretenses of Trump’s latest protectionist move
The worst ideas are bipartisan. Last week, former New Mexico governor Bill Richardson wrote an op-ed urging the Trump administration to pursue protectionism for the steel industry and praising the president for his eagerness to do so. Meanwhile, the Commerce Department officially unveiled a plan to impose tariffs of at least 24 percent on steel and 7.7 percent on aluminum, subject to the president’s will. It’s worth noting that the U.S. already has steel duties of up to 266 percent, which these will be in addition to.
Unsurprisingly, the administration’s plan was cheered by the likes of Chuck Schumer, who called the move “the beginning of efforts by this administration to finally get tough on China.” Republicans were more circumspect about the plan, with Lamar Alexander calling attention to the Bush steel tariffs’ havoc upon the American manufacturing industry. American manufacturers already face steel prices of nearly twice the world export market price owing to taxes and restrictions. Where steel mills add $36 billion of value to the economy, manufacturers that use steel add “over $1 trillion — or 5.8% of GDP” and employ over 6 million people, notes Cato’s Dan Pearson. Naked protectionism for one industry will have a devastating effect on others that employ 46 times as many people.
It’s important to remind ourselves here of what a tariff actually is: It is a tax. Trump boasts of being a “jobs president” and of passing “the biggest tax cut” in American history (he did not), yet the Trump administration has already imposed solar-panel and washing-machine taxes this year. These taxes have already started to derail American manufacturing jobs, and steel taxes will be even worse. Metal is a baseline material in manufacturing across the board; in effect, this makes it a forced price increase on most manufactured goods, with the government pocketing the rise. Before these new taxes, steel prices were already at a seven-year high.
Even the government may be losing out on the deal. The further increase in steel prices will mean higher prices for goods and lower demand for them. As lowered demand takes its toll on manufacturers, they will shrink and import less steel, yielding a reduction in revenue from business taxation and tariffs alike. And that is not to mention the increased cost of living and job losses that would go with it.
All of these effects are well-established. In 1915, Hilaire Belloc quipped that “at Oxford and at Cambridge, the few who profess to have some knowledge of political economy have shown themselves unable to this day to grasp any of the arguments for Protection.” His 1904 essay on the protectionist movement, which speaks of the futility of trying to “restore the conditions of thirty years ago” via tariff, is eerily familiar.
American conservatives have ideologically (if not always in practice) favored free trade for the better part of a century now.
Indeed, in the 1810s, Thomas Jefferson and John Adams took the benefits of international trade and free markets as a given. It is true that a Hamiltonian disdain for free markets has recurred in American politics over the years, but American conservatives have ideologically (if not always in practice) favored free trade for the better part of a century now.
On a disturbing note, like many bad ideas, this one is being pursued under the purview of national security, by means of a 1962 statute, the Trade Expansion Act. It not only cheapens the term “security” to use it as frivolous justification for protectionism, but the statute also gives the president, rather than Congress, the ability to act however he wishes in this area of the economy. Pennsylvania’s Pat Toomey, who supports some degree of trade-policy retaliation, argued recently that “invoking national security, when I think it’s really hard to make that case, invites retaliation that will be problematic for us.”
The move has sparked backlash from governments and businessmen across the world, including many American allies. The president of South Korea, Moon Jae-in, threatens to complain to the World Trade Commission if the Trump administration imposes steel protectionism, and he has suggested expanding exports to Russia and Southeast Asia given the uncertainty of the U.S. market. Earlier this week the news emerged that the European Union is ready to respond to the Trump plan with tariffs on American products. It ought to embarrass Republicans that a GOP administration is proving less friendly to international trade than are some formerly Communist states.
The chairman of Japan’s Iron and Steel Federation put it best: “The recommendations violate the principles of free trade, which are the foundation for development and prosperity of the global economy.” This used to be something that conservatives believed in.