Trump’s latest tariffs on steel and aluminum were announced to combat unfair trade practices from China. The first problem with that explanation is that China is no better than 11th on the latest list of steel exporters to the US!
The craziness of the action, however, just goes on from there. According to the steel industry itself, the major problem with steel today is overproduction in China leading to overcapacity worldwide. That’s a problem for every country that produces steel. As the NY Times pointed out, if we were really serious about Chinese behavior, there are plenty of other countries in the same boat, so collective—and effective—action is straightforward. (The US actually has a good record of success with the WTO.) Instead we’re going after those potential allies. And as a matter of fact China has already pledged to reduce its steel production in response to such international pressure. The new tariffs take the pressure off China by making the tariff wars, not the overproduction, the main issue.
The tariff proposal itself is particularly suspect, because it applies to all countries across the board. We are by definition not responding to particular protectionist behavior in targeted countries. Since we’re not punishing actual perpetrators, the proposed tariff is essentially a cheap way of financing subsidies to the steel and aluminum industries. It’s perfectly rational for the steel industry to want a subsidy by whatever means. But the President of the United States has an obligation to recognize that a shakedown of potential allies is not a good way to deal with an offender!
It’s worth saying a few words about fair trade. First of all, it’s worth recognizing that making something better and cheaper is not of its nature unfair. It is the task of trade agreements to define the rules of the game. Dumping below cost is unfair. Subsidies of all kinds are unfair (but can be hidden in many different ways!) Sales restrictions are unfair. Below standard wage arrangements or environmental rules are unfair.
China’s case is not unusual in its evolution, but it has reached historically unique proportions. For many years China was basically an underdeveloped country, with a limited ability to purchase imports to match its export-directed production—regardless of whether its markets were open or closed. As the Chinese economy has grown, however, the state has maintained that mindset despite the growth. And the Chinese population—after Mao—sees the improvement as more than acceptable, and any serious labor agitation is a good way to get shot.
China still has the mindset—and per-capita production—of a poor country. But the country is so big that its prosperous part is a huge market that should be opened to the rest of the world. The upshot is that there is plenty to discuss about fair trade with China, and now is a good time (from the point of view of international leverage) to do it. But instead we’re stuck with a trade war that will be damaging to everyone—including us—and real progress with China may get lost in the noise.
Even if we just want to focus on the steel industry, this didn’t have to happen. The best way to help the American steel industry is to buy American steel. Everyone agrees we have an infrastructure problem—in any reasonable world we would be using American steel to rebuild the country. Instead that got sacrificed to private-sector fantasy in the budget.
The final and perhaps most serious subject is the way this is being done. Trump has been able to set tariffs by fiat by claiming national security as motivation. Normally, without this seldom-used national security ploy, tariffs are a matter for Congress. That we’ve started this way is a scary first step. And Trump has already announced how he is going to respond to possible European Union tariff retaliation—by large tariffs on imported cars. You can hardly claim that is a national security matter—but it sure doesn’t seem like this government by fiat is going to stop!
So we no longer need to argue about whether Trump will or won’t try to make himself a dictator. Unless something happens, he is already in position to wreck our economy all by himself.