One of the ironies of trade protectionism is that tariffs and import quotas are what we do to ourselves in times of peace, and what foreign nations do to us by imposing blockades to prevent imports into our country in times of war.
Or consider that we impose sanctions on US enemies like North Korea, Russia, and Iran because we want them to feel the economic pain of being deprived of imports. But now we impose sanctions on our own country, punishing with tariffs, to make Americans more prosperous. If ever there was a crisis of logic, this is it.
Donald Trump sincerely believes that his steel and aluminum tariffs will save thousands of blue-collar jobs. And we know from our interactions with him that he truly cares about those workers in Pennsylvania, Ohio, and other rust belt states. We do too, and we don’t want to see factories shut down. But even if the tariffs save every one of America’s roughly 140,000 steel jobs, they put at risk 5 million manufacturing and related jobs in industries that utilize steel. These manufacturers now have to compete in hypercompetitive international markets, using steel that costs 20 percent more than the world’s average, and aluminum that costs 7 to 10 percent more than our foreign competitors.
In other words, steel and aluminum may win in the low term, but users and consumers of steel and aluminum lose. In reality, tariff increases – which are really tax increases.
Some of those 5 million jobs will be at risk. And if they sell less to foreigners, the trade deficit will enhance, not decrease. Because so many things American consumers buy today are made of steel or aluminum, a 25% tariff could be passed on to consumers at the checkout. It’s a regressive tax on low-income families.
Trump should also examine the history of tariffs, as they have almost never worked as expected and have almost always ended unsatisfactorily.
The Smoot-Hawley Tariff of 1929, signed by Republican President Herbert Hoover, led to and deepened the Great Depression.
Richard Nixon’s 10 percent import tariff contributed to stagflation in the 1970s.
George W. Bush tried to save the steel industry by imposing tariffs on steel. If those tariffs had worked, we wouldn’t be having this discussion today. We tried to save the color television industry with protectionist measures, and instead they destroyed domestic production.
We are not convinced by the Trump administration’s claim that we need to impose these tariffs for national security reasons. Despite forceful competition from imports, many specialty steel producers are doing well and are actually exporting steel to Mexico and Canada.
Meanwhile, Canada is the largest exporter of steel to the United States. Does anyone really believe that Canada poses a threat to U.S. national security?
What worries us is that Canada and Mexico are now threatening retaliatory tariffs against America. This retaliatory breakdown of trade could seriously jeopardize NAFTA. It could cause sedate economic damage to all three countries and a crash in the stock market.
Trump should continue to make American manufacturers more competitive in global markets through tax, regulatory, energy, and other pro-American policy changes that bring jobs and capital back to the United States. This is happening at breakneck speed now that Trump has made America the best and most reliable place in the world to invest, almost overnight. Import tariffs on steel and aluminum are working against that goal.
In the early 1980s, Ronald Reagan invoked anti-dumping laws against Japanese steel, one of the few decisions he later admitted he regretted making. Trump will learn the same thing, and we hope it happens sooner rather than later.
Larry Kudlow, Arthur B. Laffer, and Stephen Moore are co-founders of the Committee to Unleash Prosperity. They served as economic advisers to the Trump campaign.
