Trump's tariffs are a bad idea.
President Donald Trump deserves applause for boosting the prospects for this country’s forgotten manufacturing workers, particularly in the steel and aluminum industries. Democrats lately have neglected these Americans. Hillary Clinton barely campaigned among them in Michigan during the 2016 general election, and she thoroughly ignored them in Wisconsin.
Alas, President Trump is doing this all wrong. He likely will hurt the very middle class that he has championed since his escalator ride onto the political stage.
Trump aims to protect U.S. metal makers with new taxes of 25 percent on foreign steel and 10 percent on overseas aluminum. “Tariffs” is just a jumped-up word for taxes on imports. Like other business taxes, these will trickle down through higher prices (average new cars: up an estimated $177; cars and appliances: up some 5 to 10 percent), lower wages, curbed output, and outsourcing.
These taxes will haunt metal-buying companies.
“This is a $347 million tax on America’s brewers,” Beer Institute CEO Jim McGreevy explained Monday on the Fox Business Network.
“We think the estimate for beer is about 20,000,” he said, referring to job losses tied to costlier aluminum cans. “That’s brewers, brewery workers, waitresses, bartenders, truck drivers. These are people that rely on a vibrant beer industry for their livelihoods.”
“Here’s a simple, ‘real-life’ impact of the tariffs,” a friend on the West Coast tells me. His metal-products company serves the aircraft and aerospace industries, among others. “In late January, we bid on a job, but didn’t get the purchase order until the end of February. Now we are ordering the raw material to fabricate the parts, and the price increases have killed our profits.”
He also says that, for the first time in 30 years, a key stainless-steel and aluminum supplier last week stopped guaranteeing product prices for the entire month. “Due to the tariffs/taxes, the market is too volatile,” my friend explains. The supplier instructed customers to phone for prices, which it would honor only until the end of each business day.
“Wow!” my friend says. “We’ve never seen a situation like this before, and it is really impacting us.” These suddenly higher costs have obliterated his recent price quotes for finished products. This prompts “the inevitable conference call from the customer complaining about the price increase and urging us to honor the original quote, etc., etc., etc.”
“It’s a fiasco,” my press-shy pal says. “The only U.S. jobs that the tariffs will protect are at union-controlled domestic mills. Everyone else down the supply chain — material-distribution centers, manufacturers (like us), and our customers — will do our best to pass on these higher material costs. The real victims will be the end users of these products.”
Nightmares of a trade war are totally unnecessary, economically self-mutilating, and politically destructive.
Neel Khosa of AMSYSCO, an Illinois-based steel-wire maker, told Curbed: “The steel tariffs will shoot Trump’s infrastructure plan in the foot, to some degree.” These new taxes will make bridges, tunnels, and roads more expensive. A typical oil pipeline could cost $76 million more. Ironically, any steel in the president’s signature southern-border wall now likely will be pricier.
A Trade Partnership report predicted Monday that these new taxes will create 33,464 metals-industry jobs. Too bad these taxes will “cost 179,334 jobs throughout the rest of the economy, for a net loss of nearly 146,000 jobs,” including 28,313 fewer construction posts. “More than five jobs would be lost for every one gained,” the report says.
The biggest fear is that foreign nations will retaliate by taxing U.S. exports. A trade war would generate economic casualties and collateral damage.
These fresh nightmares are totally unnecessary, economically self-mutilating, and politically destructive. To his enormous credit, President Trump has distinguished himself as a full-throated, Reaganesque tax fighter. Thus, as the Tax Cuts and Jobs Act has gained popularity, Trump’s and the GOP’s approval ratings have risen.
Now, maddeningly, Trump is muddling this excellent tax-cutting message by increasing taxes on basic commodities, which will spur unintended consequences in unexpected ways.
So, how should Trump help workers in metal and other industries?
Insourcing.
Trump, his advisers, and American diplomats worldwide should encourage overseas manufacturers to relocate to the U.S.A. Trump and Republicans have spent 14 months making America competitive again. So, let’s compete!
America now boasts a 21 percent corporate tax, immediate expensing of capital purchases, aggressive deregulation, speedier permit approvals, increasingly abundant energy, and revitalized producers of metallurgical coal, which fires blast furnaces. It also is cheaper to schlep steel from Dayton, Ohio, to Detroit than from Mainland China to Motown.
Mercedes-Benzes are born in Alabama. BMWs hail from South Carolina. Chrysler is steering a Ram truck plant from Mexico to Michigan. Likewise, Team Trump should lure foreign metal makers right here.
(Conversely, as grim evidence that things are backsliding, Swedish appliance maker Electrolux just announced that its $250 million expansion in Springfield, Tennessee is on hold, due to metal-tax worries.)
“America is open for business,” President Trump declared in Davos, Switzerland, in January. Extending this invitation to metal moguls, from Sao Paolo to Seoul to Shanghai, would help U.S. manufacturing workers and consumers much more than the price hikes and pink slips that these infernal new taxes will forge.
William de Wolff and Gavin Wax furnished research for this article.