'Go-it-alone' trade strategies are neither wise nor effective

'Go-it-alone' trade strategies are neither wise nor effective
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On March 1, after weeks of “absolute chaos” within his administration, Trump held a hastily arranged “listening session” with metals executives.

Trump announced — to the surprise of his staff — that he’d be imposing import tariffs of 25 percent on steel and 10 percent on aluminum, and that these tariffs would last “a long period of time.” Trump reportedly chose 25 percent duties because a round number “sounds better.”

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Reaction to Trump’s informal announcement was swift, widespread — and harsh. The stock market, which Trump cites as confirmation of his economic genius, plunged 420 points. The Wall Street Journal called the tariffs the “biggest policy blunder” of Trump’s presidency.

 

Paul Ryan and other senior Republicans condemned the move and urged Trump to reconsider. Many called the decision the opening salvo in a destructive trade war. But Trump wasn’t backing down, tweeting that “trade wars are good and easy to win.” 

Trump is expected make the tariffs official by signing a decree Thursday or Friday. The tariffs will take effect in two weeks and include a temporary exemption for Canada and Mexico, based on those countries’ cooperation in NAFTA talks.

Trump claims that his trade restrictions are “SMART trade.” But making America pay new taxes on steel and aluminum isn’t smart for U.S. companies, workers or consumers — or for America and its allies. 

Here are seven reasons why: 

1. They’re not targeted. Overcapacity in steel and aluminum production — especially in China — pose major challenges to American producers and must be addressed. But Trump’s broad new tariffs don’t tackle this challenge.

Chinese steel accounts for only about 2 percent of America’s steel imports. Meanwhile, Trump’s indiscriminate tariffs will hit allies like Brazil and South Korea, and potentially Canada and Mexico, which altogether account for almost half of U.S. steel imports. Not smart. 

2. They’ll destroy downstream jobs. Tens of thousands of American-based producers use steel and aluminum to make downstream products like appliances, cans, cars, construction equipment, tools and wire. They’ll pay higher input prices under Trump’s duties.

Higher costs will cost jobs. By one estimate, for every job in steel production there are 80 in sectors that use steel or inputs made from steel. There are two million at-risk jobs in sectors that use steel “intensively.” A study by The Trade Partnership estimates that the new tariffs will lead to a net loss of 146,000 jobs.

That’s more than all the employees (140,000) who worked in U.S. steel production in 2016. The beverage industry alone estimates that Trump’s aluminum tariffs would cost 20,000 jobs Not smart.

3. Made-in-America products will be less competitive. Higher-priced steel and aluminum will also make American products less competitive — domestically and globally — against foreign products made with lower-cost inputs.

If, as Trump has promised, duties last “a long period of time,” American producers would have a powerful incentive to offshore production to get access to cheaper metals, costing American jobs. Not smart.

4. Consumers will pay more. New duties would hit American consumers with higher prices for everything from canned beer and cars to consumer products. Trump’s billionaire Commerce Secretary Wilbur Ross claims that higher costs — like an additional $175 on a new car from steel tariffs alone — are “no big deal.”

But Ross ignores the cascading effects of billions in new trade taxes on consumers, especially lower-income Americans. His claim isn’t politically smart, given that Republicans recently made a big deal over a $78 tax cut.

5. Countries will retaliate. Other countries have already threatened to retaliate by targeting American exports. Europe’s announced retaliation list includes Harleys, bourbon and Levis, while China could retaliate against American aircraft, soybeans, and digital products. American farmers, already suffering from Trump’s zero-sum trade policies, could be especially hurt. Not smart. 

6. America won’t be more secure. Trump is imposing tariffs under a law that empowers him to counter national security threats. But Trump and Ross barely mention the security justification for new tariffs. What's more, the Defense Department has warned that non-targeted tariffs could harm security relations with key allies like Canada and Europe. Not smart.

7. Trump could undermine global trade rules. Countries can bypass normal global trade rules to protect essential security interests. This exception has historically been used cautiously, but Trump’s questionable use of national security to support billions in new tariffs could cause other countries to reconsider.

Many countries consider “food security” to be essential and could use Trump’s action to justify ignoring rules that aid American farm exports. Not smart.

America faces significant global challenges, especially from an increasingly assertive China. But go-it-alone trade policies that damage America’s economy, harm allies and undermine global rules aren’t smart — or effective.

Instead, solving challenges like China’s rampant “innovation mercantilism” and its overcapacity in metals requires that America work in concert with its allies to aggressively confront these damaging practices. 

President TrumpDonald John TrumpGOP congressman slams Trump over report that U.S. bombed former anti-ISIS coalition headquarters US to restore 'targeted assistance' to Central American countries after migration deal Trump says lawmakers should censure Schiff MORE should reconsider his announced tariffs or, at least, exempt U.S. allies from them. That would be smart.

Ed Gerwin is senior fellow for trade and global opportunity at the Progressive Policy institute.