Steel, Aluminum Tariffs Spark Broad Opposition
President Donald Trump has succeeded in roiling his enemies, his economic advisers, his party, the media and international markets in announcing his intention to levy broad tariffs against all imported steel (25 percent) and aluminum (10 percent). Then he defended the tariffs in a series of tweets, including one in which he said that trade wars are “good, and easy to win.”
Lined up against the idea are a number of our allies, including Canada and Mexico, from whom most of our steel imports come and who would both be hurt by the tariffs. Trump recently tweeted that he might consider tariff exemptions for those two countries if they agreed to renegotiate NAFTA. Also opposed are the European Union; the domestic oil industry, which says its need for steel for pipelines and other structure cannot be met by the domestic steel industry; and most Republicans.
Business groups say the tariffs will add to the cost of consumer goods, push up the price of Trump’s infrastructure wish list, and work directly against the positive effects of the recently-passed tax plan, which is enjoying high approval ratings. The Wall Street Journal called the proposed tariffs “the biggest policy blunder of Trump’s presidency to date.”
One of Trump’s top economic advisers has just departed over the tariff issue and more than 100 Republican members of the House of Representatives have sent him a letter opposing them.
These proposed tariffs are not like the targeted punitive tariffs that follow a finding of dumping or unfair practice by a particular country. A section of the Trade Act of 1974, Section 201 (Global Safeguard Investigations), Import Relief for Domestic Industries, allows targeted tariffs following a finding of unfair trade practices by other countries. Presidents Bush and Obama both levied such limited, punitive steel tariffs against the Chinese during their tenures. That mechanism remains to correct any inequities by trading partners.
In 2002, Bush used the act to levy broader tariffs against Chinese steel but was forced to back down after threats of economic retaliation by the European Union, which claimed they were illegal under existing trade pacts.
For Trump’s tariffs, the Commerce Department invoked a different law passed during the Cold War to declare that steel and aluminum imports are a threat to “national security.” That authority to impose broader tariffs was delegated to the president by Congress. The law was clearly intended to selectively target critical materials or defense-related products. By finding that any imports he deems “unfair” are a threat to “national security,” Trump has turned this law into a carte blanche.
Supporters of the proposed tariffs include a few directly benefited companies and their unions. John Ferriola, president of Nucor Steel, defended Trump’s tariffs on television, saying the U.S. is already in a “trade war” on terms set by our rivals, a line used by a few other defenders. (In the 1980s, Nucor opposed such tariffs, saying it would out-compete and out-innovate its domestic and foreign rivals instead.) Following Trump’s announcement, U.S. Steel announced it was reopening a Granite City, Ill., hearth and calling back 500 laid-off employees. Stocks of U.S. Steel and Century Aluminum rose—but stocks of steel- and aluminum-using industries plunged.
What effects would the tariffs have on the inland waterways? Increased scrap prices will incentivize the selling of older barges. Makers of crew boats and other aluminum vessels would face price hikes, which means their customers would as well. New boats and barges will become more expensive, but since the industry is still recovering from a period of overbuilding and low barge rates, that could be a positive effect. Some observers point out that the price of steel normally rises and falls by hundreds of dollars per ton and say that any tariff price effects will be lost in normal fluctuations.
Conventional wisdom against broad tariffs dates back to the aftermath of the protectionist Smoot-Hawley tariffs of 1930 on 20,000 imported items. Economists today blame them for extending America’s Great Depression and spreading it to the rest of the world. Within four years after this bill’s passage, world trade shrank by 66 percent.
Our economy today is much larger, stronger and more diversified than it was in 1930. Our balance of trade is also being steadily tilted in America’s favor by the frackers.
It is also true, however, that the post-World War II global trading system largely established and maintained by the U.S. has hollowed out many domestic industries and left behind large segments of the population. Many of Trump’s base of voters no longer believe in free trade as it is currently practiced because they haven’t seen its benefits. Economists may believe that cheaper consumer prices at Walmart balance out the loss of some older industries, but the unemployed don’t see it that way. Trump’s tariffs play well with this base.
The main reason businesses oppose broad tariffs is not because of any immediate price effects, but because they fear retaliation by America’s trading partners. The European Union, America’s most important trading partner, is already assembling a list of American products to retaliate against, according to the Wall Street Journal. This is a symbolic list so far, targeting products worth about $3.5 billion that come from states represented by influential Republicans in Congress.
Are trade wars “easy to win”? We may soon find out whether Trump or his critics are right.
According to the Business Roundtable, more than one in five U.S. jobs depends upon trade. U.S. trade-related employment rose three and a half times faster than total employment from 2004 to 2013.
But wait. As we go to press, Trump is signaling that he will be “very flexible” with the tariffs and could exempt certain allies if they have strong trade and military ties with the U.S.