On tariffs, Trump stays in his economic advisors' protectionist bubble

On tariffs, Trump stays in his economic advisors' protectionist bubble
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Donald TrumpDonald TrumpTrump: McConnell 'helpless' to stop Biden from packing court Romney on NRSC awarding Trump: Not 'my preference' McConnell sidesteps Trump calling him 'dumb son of a b----' MORE’s tariffs on steel and aluminum, and his threat to slap tariffs on European cars if Europe retaliates, reveal the dangers of his policy approach. House Speaker Paul RyanPaul Davis RyanTrump faces test of power with early endorsements Lobbying world Boehner throws support behind Republican who backed Trump impeachment MORE (R-Wis.) just joined the long list of opponents to the tariff idea.

Will Trump listen to them? Not likely. He chooses policies, including his anti-trade mantra, based on the applause they get at his rallies. He relies on those who support them, and ignores experts who have contrary views. As a result, our country is subjected to unnecessary, serious risks.

Trump’s own party and most economists believe trade creates jobs and raises wages (because exporters pay more). They warn Trump’s tariffs will hurt every American and U.S. industry and risk a dangerous trade war. But their views don’t seem to matter to the administration. Instead, the president appears to rely on Wilbur RossWilbur Louis RossFormer Trump officials find tough job market On The Money: Retail sales drop in latest sign of weakening economy | Fast-food workers strike for minimum wage | US officials raise concerns over Mexico's handling of energy permits US officials raise concerns over Mexico's handling of energy permits MORE and Peter Navarro who advocated the anti-trade rhetoric that resonated so well with Trump’s followers during the campaign.

He made Ross secretary of Commerce and Navarro director of the White House National Trade Council so he doesn’t have to consider dissent from Congress, his Director of the White House Economic Council Gary Cohn, Trump confidant Larry Kudlow or the majority of economists who think the tariffs pose great risk.

The dissenters point to the tariffs of the 1930s, which were met with retaliation and led to a trade war that many economists believe contributed heavily to the Great Depression. U.S. exports declined by 40 percent, unemployment hit 25 percent, and foreign banks that financed trade defaulted on their loans to U.S. banks.

Ross dismisses this, saying that the effect of any retaliation would be "trivial," even as Canada, China and the European Union warn they would retaliate with tariffs that could cost America billions of dollars in export losses. And there is no guarantee that it would stop there, especially given Trump’s unconventional approach to governance.

Ross claims that any price increases resulting from the tariffs would be very, very small. This is perplexing coming from him. In 2002, steel companies benefited from a 30 to 50 percent increase in steel prices President George W. Bush’s 30 percent tariff on steel imports caused. Ross went on in 2005 to sell his companies for a $260 million profit.

Ross also salvaged two distressed textile companies in 2002 and 2004. When China joined the World Trade Organization and began exporting textiles into the U.S., he rushed to Washington and vigorously advocated for tariffs to help the ravaged domestic industry. The Bush administration imposed some limits on textile imports, which kept prices strong

Ross’s assurances that retaliation and price impacts would be negligible are inconsistent with his own experience and ring hollow. They show a recklessness and a willingness to subject America to great risk.

Trump picked Navarro (who didn’t require Senate confirmation) as a top trade adviser even though it’s hard to find another economist who fully agrees with his views. Navarro is fixated on reducing U.S. trade deficits. He is a proponent of high tariffs, a staunch critic of trade with China, and a strong opponent of the Trans-Pacific Partnership — a Trump dream.

True to form, Trump apparently chose not to seek contrary views from Congress. “I didn’t know he’d announced anything,” said Sen. Rob PortmanRobert (Rob) Jones PortmanHillicon Valley: Biden nominates former NSA deputy director to serve as cyber czar | Apple to send witness to Senate hearing after all | Biden pressed on semiconductor production amid shortage Bipartisan lawmakers signal support for Biden cybersecurity picks GOP Ohio Senate candidate asked to leave RNC retreat MORE (R-Ohio). The announcement drew condemnation from Congressional Republicans. Sen. Ben SasseBen SasseBipartisan lawmakers signal support for Biden cybersecurity picks To encourage innovation, Congress should pass two bills protecting important R&D tax provision Maine GOP rejects motion to censure Collins MORE, a Nebraska Republican, said “The president is proposing a massive tax increase on American families,” because the price of everything from cans to cars will increase as a result.

White House economic adviser Gary Cohn opposed the tariffs as potentially sparking a trade war that could cascade into a serious economic downturn. He privately told colleagues that if Trump levied them broadly on foreign countries, he may quit.

Trump’s insistence on doing what he wants while treating advisors and critics with disregard is a familiar one. His travel ban from seven majority-Muslim countries was rolled out without counsel from the Department of Homeland Security. Those who challenged it, including the acting Attorney General and the federal judge who temporarily blocked it, he simply fired or personally attacked.

It is hard to reconcile Trump’s decision with the dangers posed by tariffs. Perhaps he is obsessed with keeping a campaign promise. Perhaps he is appealing to his base, expecting Republicans in Congress to sit on their hands because they need Trump supporters to keep their seats. It would seem, however, that the risks here are so great that reason should prevail over politics.

Neil Baron advised the SEC and congressional staff on rating agency reform. He represented Standard & Poor’s from 1968 to 1989, was Vice Chairman and General Counsel of Fitch Ratings from 1989 to 1998, and was on the board of Assured Guaranty for a decade.