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Trump’s National Security Excuse for Trade Protectionism Is Almost as Bad as the Economic One
National security is the justification President Trump will employ if he takes action against aluminum and steel imports. As the president said last week, “I want to keep prices down but I also want to make sure that we have a steel industry and an aluminium industry and we do need that for national defense. If we ever have a conflict we don’t want to be buying steel [from] a country we are fighting.”
Really? Just what sort of military scenarios is the Pentagon feeding the White House? The top two suppliers of steel imports to the US are Canada and Brazil. Russia and China, on the other hand, are fifth and eleventh with 9% and 2% of imports, respectively. Indeed, as trade expert Phil Levy points out, the US currently has defense treaties with five of the 12 countries picked for potentially higher tariffs. Levy adds that the report itself notes that Defense Department steel needs require a measly 3% of US steel production.
This supposed national security reason looks like a paper-thin excuse for trade action. Then again, cooking up an economic justification would be even harder, as Trump’s quote about prices suggests. Although the US metal manufacturing industry produces some $60 billion in value-added output, according to the Cato Institute, domestic manufacturers that use steel generate nearly $1 trillion.
When barriers are raised against steel imports, former George W. Bush economic adviser Keith Hennessey has explained, “You also raise input prices for American firms that use steel to build bridges and buildings and make cars, and trucks, trains and train tracks, appliances, ships, farm equipment, drilling rigs and power plants, and tools and packaging.” So what you give with corporate tax cuts, you take away with misguided trade policy.
The economic case for President Trump’s protectionist trade policy is, as Trump himself might put it, “like, the opposite of strong.” It really is basic economics. Adam Smith and David Ricardo. The IGM survey of economists found 96% agreed or strongly agreed, “Freer trade improves productive efficiency and offers consumers better choices” while just 5% agreed (and none strongly agreed) with Trumponomics’ core view: “A typical country can increase its citizens’ welfare by enacting policies that would increase its trade surplus (or decrease its trade deficit).”
So what is the real goal here? Pretty much just a sop to Trump’s unhelpful economic nostalgia. (“For Trumpists, steel is an emblem of their country’s descent from greatness” is The Economist’s correct take.) But what an expensive concession to make, especially if it leads to expanding and deepening trade conflict.
Published in Economics
I can go along with that. Before I retired, I worked on a large-scale construction project with the Department of Energy. Many of the workers on the project had to use safety harnesses for elevated work, and these harnesses including steel rings and clip-on fittings.
Whenever we found out Chinese steel was used for the fittings, the harnesses were immediately removed from service. Why? The steel was too brittle. Imagine a worker slipping and falling from a scaffold, and the fittings that are supposed to halt his fall snap. That’s what we call “a bad day”.
Now picture bad steel being used in our bridges, or in other applications such as skyscrapers. God forbid we use Chinese steel in any defense application (as well as Chinese computers, computer components, etc.). If they sell us poisonous dog food and asbestos-laden drywall, they’d deliberately sell us bad metal.
Commodities such as steel or oil (or titanium, or an entire host of materials) are a vital part of our defense. Being able to make it here is crucial, and keeping a source within our borders is important.
If we want vibrant industries we need to make them compete and we have to figure out what we’re doing that makes them uncompetitive. The best way to destroy an industry in the long term is to protect it from competition, let its managers and workers get fat and lazy. That is what happened to steel in the first place. How many times do we have to learn this lesson.
I hold out some small hope that this is another one of his trial balloons that will disappear in the chaff.
Here is Pat Buchanan’s take on tariffs:
https://www.zerohedge.com/news/2018-03-06/pat-buchanan-asks-why-gop-so-terrified-tariffs
Does Senator Flake think Japan rose to post-war preeminence through free trade, as Tokyo kept U.S. products out, while dumping cars, radios, TVs and motorcycles here to kill the industries of the nation that was defending them. Both Nixon and Reagan had to devalue the dollar to counter the predatory trade policies of Japan. Since Bush I, we have run $12 trillion in trade deficits, and, in the first decade in this century, we lost 55,000 factories and 6,000,000 manufacturing jobs.
Does Flake see no correlation between America’s decline, China’s rise, and the $4 trillion in trade surpluses Beijing has run up at the expense of his own country? The hysteria that greeted Trump’s idea of a 25 percent tariff on steel and 10 percent tariff on aluminum suggest that restoring this nation’s economic independence is going to be a rocky road.
In 2017, the U.S. ran a trade deficit in goods of almost $800 billion, $375 billion of that with China, a trade surplus that easily covered Xi Jinping’s entire defense budget. If we are to turn our $800 billion trade deficit in goods into an $800 billion surplus, and stop the looting of America’s industrial base and the gutting of our cities and towns, sacrifices will have to be made. But if we are not up to it, we will lose our independence, as the countries of the EU have lost theirs.
Specifically, we need to shift taxes off goods produced in the USA, and impose taxes on goods imported into the USA. As we import nearly $2.5 trillion in goods, a tariff on imported goods, rising gradually to 20 percent, would initially produce $500 billion in revenue. (Full article at link URL above.)