Donald Trump is imposing 25 percent tariffs on imported steel and 10 percent on aluminum. The unions, the bipartisan steel caucus in Congress, domestic steelmakers, and Trump’s nationalistic base were delighted. The usual suspects were appalled. And the stock market promptly plunged.
The Wall Street Journal, working itself into a full lather, warned that this was perverse economics, since 6.5 million Americans work in steel-using industries while only 140,000 work in steel-making.
So, how should we understand this? Are these tariffs a case of Trump doing something right for a change, or protectionist folly?
Here are two important things to understand. First, the major offender here is China. The Chinese subsidize steel, sell it below cost in world markets to grab market share and drive out other producers.
This is a flagrant violation of trade norms as well as a national security threat. According to an authoritative study by the Association for American Manufacturing, China now dwarfs every other producer, making 803 million metric tons (mmt) of steel, compared to just 78 mmt for the U.S.
Second, steel really is a vital industry. But if things continue on their present course, the American steel industry will be gone.
Here’s the problem. Raising tariffs in isolation is not a policy; it’s a stopgap. We need a much broader grand strategy to challenge China’s state-led capitalism as a strategic threat and to revise the entire structure of world trade law, which seems powerless to deal with Chinese predation. This seems well beyond Trump’s comprehension.
Today, he tweeted:
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
In addition, raising tariffs is no substitute for an industrial policy. To revive American steelmaking and other manufacturing, we need targeted sectoral policies as well as a serious public infrastructure program with “buy America” provisions. That way there are made-in-America customers for made-in-America steel, and we begin rebuilding U.S. manufacturing generally.
So can we defend these tariffs? Yes, but only as a stopgap and only as part of a much larger set of policies that Trump is not capable of delivering. As the saying goes, even a stopped clock is right twice a day.