Trump's Tariffs Won't Help American Workers
President Trump’s naïve economic nationalism is on full display in his plan to slap big tariffs on imported steel and aluminum and his enthusiasm for trade wars. He says trade wars are “good, and easy to win.” In fact, there’s nothing good about trade wars. No country that fights one comes away with a win. Moreover, the biggest losers from his ham-handed approach to addressing legitimate issues in the troubled U.S. steel and aluminum industries won’t be his intended target, China, but U.S. allies, other U.S. industries, and U.S. consumers.
To be sure, there’s a real problem of excess capacity in the worldwide steel and aluminum industries. Capacity exceeds current and likely future demand in steel for years to come, while aluminum manufacturers are calling for a global forum to address excess capacity. China is the largest producer, exporter, and source of this excess capacity. Indeed, China’s excess steel capacity surpasses the United States’ total steel-making capacity, according to the Commerce Department report that Trump is using to justify his actions.
U.S. steel and aluminum plants are closing or operating at unsustainably low production levels and, while these two industries account for a tiny fraction of U.S. jobs, tens of thousands of workers have lost good-paying jobs since 2000. The economic effects of plant closures and job losses can ripple through the local economies experiencing them.
That said, the president will be shooting the economy in the foot with his tariff proposal. Yes, he may save a few jobs in the steel and aluminum industries, and companies will be a little more profitable. But more jobs will be lost and profits will fall in the broad range of other industries that will have to pay more for the steel they use to produce everything from cars to beer cans. The evidence suggests that the economy will suffer overall.
Consumers, meanwhile, will pay more for a broad range of products. There is good evidence that U.S. tariffs are an arbitrary and regressive tax that hit low-income households hardest. That’s because these households generally spend more on traded goods as a share of their total spending or income. It may be true, as Trump spokesmen have argued, that the direct economic costs of the steel and aluminum quotas per se will be modest. But that won’t be true if other countries retaliate — and especially if the full-scale global trade war that Trump seems to covet breaks out.
The president has chosen the little-used national security provision of U.S. trade law to justify his decision to impose tariffs. More commonly, industries initiate actions under the antidumping provision against imports that they claim are sold below “fair value” or the countervailing duties provision against government-subsidized imports. Chad Bown of the Peterson Institute for International Economics shows that substantial restrictions on imports from China were already in place through such measures when Trump took office. He argues that “self-initiated” actions such as Trump’s are both unnecessary and undermine the rules-based international trading system that has allowed countries to achieve the economic benefits of trade.
The way to address China’s role in driving the world’s excess-capacity problem is through U.S. cooperation with its allies to pressure China. But Trump’s policies will drive a wedge between the United States and those allies, who are responsible for more exports to the United States than China. That means that Trump’s tariffs expose our allies to higher costs, inviting them to retaliate. The better way to address the plight of steel and aluminum workers and communities is to provide direct economic relief, and, where facilities are outmoded or uncompetitive, provide robust transition assistance to those workers and communities. Instead, Trump offers empty promises and false hopes, just as he has for coal workers and communities when it comes to energy policy.
Economic change is disruptive, and the gains from technological progress and global trade will be accompanied by losses for some sectors and workers. Policymakers need to step up their game when it comes to ameliorating those losses. But if the president thinks tariffs and trade wars are the answer, he’s on the wrong side of history — and economic reality.
Chad Stone is Chief Economist at the Center on Budget and Policy Priorities.