Time to Stop the War Against Imports
In August 2017, the U.S. Commerce Department announced a decision to tax aluminum imports from China. This was followed in October by a recommendation from the Commerce Department to impose tariffs on imports of Bombardier’s C-Series airplanes that could amount to almost 300 percent. More recently, the Commerce Department announced that it would impose finalized duties on softwood lumber imports from various Canadian companies that vary between around 10 and 31 percent depending on the company.
These actions were precipitated by complaints from U.S. companies such as Boeing. And the U.S. government’s justification for them was that the foreign companies involved received government subsidies and priced their exports “below cost.” Looking ahead, U.S. trade officials have recommended that the Trump administration impose an import tariff of up to 35 percent on solar panels to protect U.S. solar manufacturers from low-priced imports. Imports of steel are also in the administration’s cross hairs.
Add to this orgy of penalties against imports the Trump administration’s discouraging posture in the current NAFTA negotiations. One major U.S. demand is that challenges to trade actions taken by the U.S. government against Canadian and Mexican companies be adjudicated by U.S. courts, not by NAFTA tribunals. Given the enthusiasm that the U.S. government is exhibiting for imposing tariffs to curtail imports, it is hardly surprising that Canada and Mexico want a continuation — or even a strengthening — of NAFTA’s dispute resolution process. These countries may even walk away from the negotiations if the U.S. is unbending on this issue.
What is the ostensible justification for the Trump administration’s war against imports and related attacks on close U.S. trade partners? That “fair trade” is needed to create employment and higher wages in the U.S. Hence these trade actions are meant to curtail “unfair trade,” which allegedly harms American workers.
Of course, fairness is a matter of interpretation. That is why most trade actions end up in disputes. What is not disputable is that the broader the U.S. government’s definition of unfair trade practices, the more complaints it will receive from American companies seeking to reduce or eliminate foreign competition. Moreover, the weaker the legal standards to “prove” unfair trade practices on the part of foreign competitors, the more American companies will focus on increasing profits by pleading for tariffs and other trade actions, rather than by innovating and improving efficiency.
Supporters claim that tariffs will create more jobs and higher incomes in the U.S. by substituting American-made products for foreign products. This claim is, at best, disingenuous and, at worst, simply wrong. To be sure, tariffs on softwood lumber imports from Canada will likely create more employment in sawmills in the Pacific Northwest. However, it will also lead to higher costs for builders of new homes and renovators of existing homes. This will result in overall less employment of construction workers and those working in activities related to home construction, including mortgage brokers, title insurers, and architects. This does not create more employment. At best, it simply changes the mix of employment.
Since Boeing is not currently producing a direct substitute for Bombardier’s C-Series plane, it is not even clear that the tariff proposed against Bombardier will lead to increased employment at Boeing. A tariff will certainly not encourage Boeing to improve its efficiency. However, if the proposed tariffs against Bombardier are finalized, they will almost certainly force Delta and other U.S. airlines to use planes that are less efficient for their businesses. This, in turn, suggests that U.S. airlines will pay lower wages to their employees than they otherwise would or raise prices to their customers. Either way, this will result in lower real incomes for Americans who work in the airline industry or consume its services.
When imposing countervailing and anti-dumping duties, U.S. trade authorities often focus on the effects imports have on specific domestic industries and thus the narrow economic interests of particular companies and their employees. Trade administrators should instead adopt a broader social benefit-cost perspective, as they are supposed to do when negotiating trade agreements. Very few actions to raise the price of specific imports would pass a test for positive net social benefits.
The growing chain of U.S. government trade actions will not benefit American workers, but, rather, decrease employment opportunities and real incomes for most Americans in the long run.
Steven Globerman is the Kaiser professor of international business at Western Washington University in Bellingham, Washington.