Tariffs Won't Help Make America Great Again

Now that the Commerce Department has classified foreign steel and aluminum imports as a threat to national security under Section 232, the debate over tariffs is heating up.  Commerce's recommendations include duties of 24% on steel and 7.7% on aluminum, as well as quotas to peg U.S. imports of the two metals to a fraction of current levels.

The ball is now in Donald Trump's court to decide, between now and April, whether heavy tariffs should come into play or not.  The president wants to do right by the Rust Belt, but would tariffs really make American manufacturing great again?

The question is much trickier than it seems at first glance.  The Heritage Foundation – which boasted in January that the White House embraces two thirds of its ideas – has warned that tariffs always come with unintended consequences and may ultimately do more harm than good.  Not only are tariffs among the "least effective" tools to punish other countries, but they also cost taxpayer dollars and American jobs.

The Cato Institute has also urged the president to rethink his approach, noting that "steel import restriction would harm the U.S. economy" by inflicting vital damage to the competitiveness of the wider manufacturing sector.  While steel mills employ 140,000 workers in an industry whose annual turnover clocks in at $36 billion, steel-reliant manufacturers employ 6.5 million people and generate $1.04 trillion.

We already have concrete examples of how tariffs on the same imports have played out in the past.  A report for the Consuming Industries Trade Action Coalition (CITAC) on the unintended consequences of steel tariffs imposed by George W. Bush in 2002 found that 200,000 Americans lost their jobs due to higher steel prices that year.  That number represents approximately $4 billion in lost wages.  Fifty thousand of the jobs list were in secondary industries highly reliant on imported steel, like machinery and equipment.

That Bush-era case study shows that America's embattled blue-collar workers could be in for another rough ride.  While the trade protections are meant to be one in the eye for Chinese metals-producers (and one the Chinese deserve), they come with a high risk of friendly fire.

U.S. manufacturing is highly dependent on foreign metals, and tariffs applied across the board will severely restrict manufacturers' ability to access products from critical steel- and aluminum-suppliers in other parts of the world.  Imports represent 90% of America's primary aluminum consumption, or roughly 4 million tons a year.  China isn't even in the top ten suppliers.  Out of our country's unused production capacity, we'd be able to get only around 500,000 back online.  As one expert put it recently, "the days when the United States was the largest producer of aluminum in the world are long gone, with most of the lost smelters dismantled and beyond resurrection."

If the goal is to give as good as we get, it's important to note that global tariffs wouldn't even have that much of an impact on China.  So what would they achieve instead?

As it turns out, they would mostly be good just for hurting American consumers.  Australian and British-owned Rio Tinto ships 75% of the output from its Canadian smelters to the U.S. and would face restrictions just like Chinese producers.  Unsurprisingly, the company is supporting Canadian efforts to obtain an exemption to avoid impasses and unnecessary trade losses.  Rusal, the world's largest producer outside China, is the second biggest source of aluminum for American manufacturing.  Emirates Global Aluminum (EGA) comes in third.

Leaders of the brewing industry have already warned that any duties on aluminum entering the states will be passed on to consumers, making beer more expensive.  Rest assured that GM and Ford executives will reach a similar conclusion when the aluminum going into their cars suddenly becomes pricier.  If the C-suite can roll the added costs downhill, they will.

All of this makes it easy to understand why so many prominent Republicans are warning the White House that trading partners will not take the imposition of punitive tariffs enacted under the guise of "national security" lying down.  The European Union, America's largest trading partner, has already announced that it will impose punitive measures on U.S. products in the case that Washington restricts metal imports.  Eurocrats quickly presented a hit list of affected American goods that seems to pretty nicely encapsulate their mental image of us: it includes agricultural products but also whiskey and Harley-Davidson motorcycles.

The Chinese have also launched an anti-dumping and anti-subsidy investigation of their own into sorghum imports from the U.S.  By slapping punitive tariffs on sorghum, Beijing can easily put the screws to a $1-billion-a-year industry – not to mention that China could escalate by targeting the $14-billion soybean sector or U.S. coal exports, just as coal country picks itself back up off the ground.

In attempting to protect the economy, choosing the wrong course of action could unintentionally shoot the economy in the foot just as the new tax cuts come into effect.  If national security is the priority, then broad, indiscriminate tariffs aren't the way to do it.  Limiting U.S. companies' access to foreign metals is a surefire way to weaken the economy and make us more vulnerable – taking Commerce's national security argument and turning it on its head.

If Trump wants to make American manufacturing great again, he should have Commerce come up with a surgical approach that targets only Chinese imports and spares the rest.

Now that the Commerce Department has classified foreign steel and aluminum imports as a threat to national security under Section 232, the debate over tariffs is heating up.  Commerce's recommendations include duties of 24% on steel and 7.7% on aluminum, as well as quotas to peg U.S. imports of the two metals to a fraction of current levels.

The ball is now in Donald Trump's court to decide, between now and April, whether heavy tariffs should come into play or not.  The president wants to do right by the Rust Belt, but would tariffs really make American manufacturing great again?

The question is much trickier than it seems at first glance.  The Heritage Foundation – which boasted in January that the White House embraces two thirds of its ideas – has warned that tariffs always come with unintended consequences and may ultimately do more harm than good.  Not only are tariffs among the "least effective" tools to punish other countries, but they also cost taxpayer dollars and American jobs.

The Cato Institute has also urged the president to rethink his approach, noting that "steel import restriction would harm the U.S. economy" by inflicting vital damage to the competitiveness of the wider manufacturing sector.  While steel mills employ 140,000 workers in an industry whose annual turnover clocks in at $36 billion, steel-reliant manufacturers employ 6.5 million people and generate $1.04 trillion.

We already have concrete examples of how tariffs on the same imports have played out in the past.  A report for the Consuming Industries Trade Action Coalition (CITAC) on the unintended consequences of steel tariffs imposed by George W. Bush in 2002 found that 200,000 Americans lost their jobs due to higher steel prices that year.  That number represents approximately $4 billion in lost wages.  Fifty thousand of the jobs list were in secondary industries highly reliant on imported steel, like machinery and equipment.

That Bush-era case study shows that America's embattled blue-collar workers could be in for another rough ride.  While the trade protections are meant to be one in the eye for Chinese metals-producers (and one the Chinese deserve), they come with a high risk of friendly fire.

U.S. manufacturing is highly dependent on foreign metals, and tariffs applied across the board will severely restrict manufacturers' ability to access products from critical steel- and aluminum-suppliers in other parts of the world.  Imports represent 90% of America's primary aluminum consumption, or roughly 4 million tons a year.  China isn't even in the top ten suppliers.  Out of our country's unused production capacity, we'd be able to get only around 500,000 back online.  As one expert put it recently, "the days when the United States was the largest producer of aluminum in the world are long gone, with most of the lost smelters dismantled and beyond resurrection."

If the goal is to give as good as we get, it's important to note that global tariffs wouldn't even have that much of an impact on China.  So what would they achieve instead?

As it turns out, they would mostly be good just for hurting American consumers.  Australian and British-owned Rio Tinto ships 75% of the output from its Canadian smelters to the U.S. and would face restrictions just like Chinese producers.  Unsurprisingly, the company is supporting Canadian efforts to obtain an exemption to avoid impasses and unnecessary trade losses.  Rusal, the world's largest producer outside China, is the second biggest source of aluminum for American manufacturing.  Emirates Global Aluminum (EGA) comes in third.

Leaders of the brewing industry have already warned that any duties on aluminum entering the states will be passed on to consumers, making beer more expensive.  Rest assured that GM and Ford executives will reach a similar conclusion when the aluminum going into their cars suddenly becomes pricier.  If the C-suite can roll the added costs downhill, they will.

All of this makes it easy to understand why so many prominent Republicans are warning the White House that trading partners will not take the imposition of punitive tariffs enacted under the guise of "national security" lying down.  The European Union, America's largest trading partner, has already announced that it will impose punitive measures on U.S. products in the case that Washington restricts metal imports.  Eurocrats quickly presented a hit list of affected American goods that seems to pretty nicely encapsulate their mental image of us: it includes agricultural products but also whiskey and Harley-Davidson motorcycles.

The Chinese have also launched an anti-dumping and anti-subsidy investigation of their own into sorghum imports from the U.S.  By slapping punitive tariffs on sorghum, Beijing can easily put the screws to a $1-billion-a-year industry – not to mention that China could escalate by targeting the $14-billion soybean sector or U.S. coal exports, just as coal country picks itself back up off the ground.

In attempting to protect the economy, choosing the wrong course of action could unintentionally shoot the economy in the foot just as the new tax cuts come into effect.  If national security is the priority, then broad, indiscriminate tariffs aren't the way to do it.  Limiting U.S. companies' access to foreign metals is a surefire way to weaken the economy and make us more vulnerable – taking Commerce's national security argument and turning it on its head.

If Trump wants to make American manufacturing great again, he should have Commerce come up with a surgical approach that targets only Chinese imports and spares the rest.