It would be nice if economically illiterate White House “fact sheets,” a regular occurrence under the Biden administration, were a thing of the past. But Trump’s fact sheet justifying auto tariffs is positively Bidenesque.
Like Biden, Trump is abusing economic powers of the president intended for national defense to do something he wants to do regardless of any defense concerns. Biden used the Defense Production Act to support green energy, and now Trump is using Section 232 national-security tariffs to protect the car industry.
That’s Section 232 of the Trade Expansion Act, which is mostly used these days to restrict, not expand, trade. The president is doing so based on a Department of Commerce report from 2019, which said that “automobiles and certain automobile parts are being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.” The data from that report is mostly from 2017.
Idealistic protectionists imagine trade experts in Washington analyzing the latest economic data, consulting with defense officials, and working with industry to fine-tune the economy to balance national security with prosperity. In reality, the president is taking a report based on information that’s eight years old and saying “good enough.”
Trump thinks it’s worth it to abuse the process in this way because, as the fact sheet says, “Studies have repeatedly shown that tariffs can be an effective tool for reducing or eliminating threats to impair U.S. national security and achieving economic and strategic objectives.”
What studies? Let’s go through them one by one:
- “A 2024 study on the effects of President Trump’s tariffs in his first term found that they ‘strengthened the U.S. economy’ and ‘led to significant reshoring’ in industries like manufacturing and steel production.”
- This is not a study, but rather an article on the website of the Coalition for a Prosperous America (CPA), a lobbying group that supports tariffs. To back up the claim of “significant reshoring,” the author lists three instances of companies creating a total of 1,345 jobs after the China tariffs and claims that the steel tariffs created 4,000 jobs. Granting for sake of argument that these numbers are correct, 5,345 jobs is hardly “significant,” accounting for 0.0033 percent of the roughly 163 million employed Americans. Other evidence provided is that the steel tariffs benefited steel companies, which . . . of course they did. Nowhere does the author consider the jobs lost due to higher input costs for manufacturers; in fact, he specifically rejects such analysis and says tariffs should only be “judged based on the targeted industries.” Of course tariffs can benefit the targeted industry, but the existence of concentrated benefits does not justify dispersed costs.
- “A 2023 report by the U.S. International Trade Commission that analyzed the effects of Section 232 and 301 tariffs on more than $300 billion of U.S. imports found that the tariffs reduced imports from China and effectively stimulated more U.S. production of the tariffed goods, with very minor effects on prices.”
- The report also found that the costs to users of steel and aluminum were over $1 billion greater than the increased U.S. production of steel and aluminum. In other words, it found exactly what economists would expect: Tariffs benefited one industry at the expense of other industries and on net imposed a burden on the economy. It also found that one of the industries most negatively effected was auto parts, which Trump is now trying to “help” with more tariffs.
- “According to the Economic Policy Institute, the tariffs implemented by President Trump during his first term ‘clearly show[ed] no correlation with inflation’ and only had a temporary effect on overall price levels.”
- The Economic Policy Institute is organized labor’s think tank, usually cited by Democratic administrations. It has a long DEI statement that it says guides all of its research, which Trump is apparently in this case willing to overlook because they sorta-kinda said something nice about his tariffs. The article from which the tariff quotation is pulled is from 2022, and it urges the Biden administration not to repeal tariffs because the authors believed they were consistent with Biden’s agenda. They were also harshly critical of Trump, writing that “the Trump administration’s trade policy amounted to little more than unfocused rhetoric” and “many of Trump’s tariff hikes lacked a strategic purpose and end goal, and there was no underlying policy effort made to restore American competitiveness.” Regardless, one would not expect tariffs in a handful of industries to cause lasting increases in the economy-wide inflation rate. Tariffs do not increase the money supply, so their imposition in one sector will mean less spending in other sectors, balancing out the inflationary effects.
- “An analysis from the Atlantic Council found that ‘tariffs would create new incentives for US consumers to buy US-made products.'”
- That is, of course, part of what tariffs do. But it’s only a partial accounting. The question is whether those gains would offset losses created by the encouragement of less efficient production, the effects of retaliation from other countries, and the deadweight loss created by the imposition of this new tax. The empirical evidence repeatedly confirms that it does not. The Atlantic Council explainer on Mexico tariffs that this quote is pulled from also says “tariffs could generate price increases in US states that are the main importers from Mexico.” After one of Trump’s tariff announcements, one of the group’s senior directors wrote, “Now that investors have woken up, expect a bumpy ride ahead—in trade, in markets, and for the global economy.”
- “Former Biden Treasury Secretary Janet Yellen affirmed last year that tariffs do not raise prices: ‘I don’t believe that American consumers will see any meaningful increase in the prices that they face.'”
- Again, we shouldn’t expect tariffs to raise the inflation rate overall, only the prices of the goods to which they apply. And what exactly is the administration trying to prove by quoting Janet Yellen?
- “A 2024 economic analysis found that a global tariff of 10% would grow the economy by $728 billion, create 2.8 million jobs, and increase real household incomes by 5.7%.”
- This analysis is also by the CPA. Their model assumes, contrary to empirical evidence and to economic theory, that tariffs increase economy-wide production, on the basis that they can increase production in the industries to which they are applied. As Bryan Riley of the National Taxpayers Union wrote last year of the model, it is based on misreading multiple economics papers that end up finding the opposite of what the authors suggest. It also ignores the historical evidence from countries that tried to get growth from protectionism. A 2020 survey of evidence from 151 countries between 1963 and 2014 found that “tariff increases are associated with an economically and statistically sizeable and persistent decline in output growth.”
This is the Biden economics playbook: Abuse national-security laws to do something you want to do anyway, purposefully ignore actual economic research on the topic, find other “research” from “experts” you like, and — bizarrely, coming from Trump — cite the Economic Policy Institute and Janet Yellen to support you.