The problem with Trump’s tariff plan

Trade policy is like immigration policy in the sense that whichever policies are selected, there will be winners and losers among Americans. For example, to oversimplify, tolerating illegal immigration hurts Americans who lose work to illegal immigrants or have their wages driven down. But it helps businesses that rely on cheap labor, their customers, and those well-off Americans who want cheap gardeners and the like.

Trade policy, such as tariffs, also produces winners and losers. But it differs from immigration policy because the winner/loser divide is less defined by economic class. Some industries win and others lose. Workers in some industries win while workers in other industries lose.

The other difference is that economic theory is pretty clear in teaching that the overall economy tends to be enhanced by free trade policies. There is no such consensus when it comes to immigration policy.

This article in the New York Times shows how President Trump’s plan to impose steep tariffs on imported steel and aluminum, if implemented, would create winners and losers among the blue-collar workers who comprise part of his based. Why? Because the divide between metal producers, who will be helped by the tariffs, and their customers, who will be harmed, “slices directly through Mr. Trump’s blue-collar constituency.”

Producers will gain a significant advantage from tariffs on foreign competitors. But companies that buy from these producers will be hurt by the higher prices the producers will be able to charge.

It may well be, moreover, that there will be more losers than winners. That’s the view of Monica de Bolle, an economist at the Peterson Institute for International Economics, whom the Times quotes. Her argument is that the mills and smelters that supply the raw material, and that would directly benefit from the tariffs, have been shrinking for years. According to the Times, they employ fewer than 200,000 people. Meanwhile, the companies that buy steel and aluminum, to make everything from trucks to chicken coops, employ more than 6.5 million workers, according to a Heritage Foundation analysis of Commerce Department data.

Even so, workers in the steel and aluminum industries should not be harmed by the unfair trade practices of nations like China. Leo Gerard, the president of the United Steelworkers union, which also represents aluminum workers, tells the Times that his members are tired of enduring layoffs because of an onslaught of artificially cheap steel and aluminum produced by “cheaters” in China. President Trump is right to want to help them.

But as far as I can tell, the tariffs Trump wants to impose are not limited to cheaters like China and, in fact, might make it more difficult to deal with Chinese cheating on various fronts. As Robert Atkinson of the Information Technology and Innovation Foundation, explains (via Reihan Salam at NRO):

The problems with the Trump metal tariffs are numerous, but perhaps the most important is that rather than use tariffs as a weapon to force China to roll back its damaging innovation mercantilist policies, an effort for which we will need all the help we can get from our allies, the tariffs are applied indiscriminately against friend and foe, free trader and mercantilist. This alienates potential allies in the broader China effort as well as invites tit-for-tat retaliation, which the Europeans have already said they would put in place.

In fact, there is reason to believe that the effect on China of the planned tariffs would be minimal. The Washington Post says that China accounts for only two percent of U.S. steel imports and the Chinese reportedly have been working to cut overcapacity in their steel industry. Thus, the Chinese would “take a small, really negligible, hit to their steel and aluminum exports” from the proposed tariffs, according to Arthur Kroeber, managing director of a Beijing-based research firm.

Germany apparently would take a larger hit than China. Canada, Mexico, and South Korea would take the biggest hits.

Any critique of Trump’s plan should be tempered by the fact that it hasn’t yet been signed anything and, in any case, whatever he signs may turn out to be an effort to set the stage for improved deals with China and maybe others. John made this point earlier today. However, if it’s true that the suggested tariffs on steel and aluminum wouldn’t have much impact on China, Trump’s talk of imposing such tariffs aren’t likely to bring China to the bargaining table.

Instead, China will be able to call Trump’s bluff. At that point, Trump would be hard-pressed to back down. Perhaps, though, he would decline to apply the tariffs to friend and foe/cheater and non-cheater, alike.


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