President Trump's steel and aluminum tariffs have arrived. On Thursday, Trump announced he'll sign an order next week imposing a 25 percent tariff on all steel imports and a 10 percent tariff on all aluminum imports.
The economic merits of this policy are decidedly mixed. Analysts worry it could make everything from cars to beer more expensive while only boosting the fortunes of a handful of American workers. It could also easily start a trade war if affected countries retaliate.
But one aspect of Trump's controversial decision hasn't gotten nearly the attention it deserves: the justification. Ostensibly, these tariffs are to protect national security.
That's a transparently dishonest pretext, and it could have major repercussions for what happens next.
Last April, the Commerce Department received orders to investigate whether steel and aluminum imports are a threat to national security under a little-used corner of trade law called Section 232 of the Trade Expansion Act of 1962. The idea is that, should the U.S. get into a real war — i.e. one with planes and tanks, not trade representatives and customs duties — it will need reliable ways to secure resources like aluminum and steel. Since cheap imports can erode and eventually destroy domestic industries, tariffs may be needed to ensure those industries survive.
The Commerce Department returned in January with a report recommending that tariffs be imposed, and offered a range of possible options. Despite some vehement divisions over the policy among his own advisors, Trump reportedly settled on the most aggressive.
Now, American steel mills and aluminum smelters do operate below full capacity — at 72 percent and 39 percent, respectively, in 2017. Nonetheless, the industries are actually faring pretty well. Jobs in aluminum increased between 2013 and 2016, and major steel producers have chalked up solid revenues and profit margins. Meanwhile, U.S. defense purchases account for just 3 percent of domestic steel production, and 20 percent of domestic high-purity aluminum production. Both industries could easily be scaled up should the need arise.
We also import steel and aluminum from a wide range of countries, particularly Canada, South Korea, and Mexico. Of the nations the U.S. might go to war with, none of these suppliers are exactly high on the list. And trusted allies have traditionally counted as reliable sources for supplies in national security situations.
The rules of the World Trade Organization (WTO) — of which America, China, and most every other concerned country are members — discourage these sorts of unilateral trade barriers. There's an exception for national security matters, but it's there on the implicit understanding that countries will use it rarely and judiciously. By contrast, the White House's use of it seems transparently cynical. Administration rhetoric ping-pongs between yes-of-course nods to national security and much more straightforward criticism of unfair trade practices. Whenever he's on a roll, Trump himself tends to forget why he's imposing these tariffs:
Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!
— Donald J. Trump (@realDonaldTrump) March 1, 2018
This threatens to transform the national security exemption into a loophole big enough to drive a steel-laden semi-truck through. That could destabilize the WTO arrangement, and lead other trade partners to launch their own counterattacks. South Korea is threatening to lodge an official WTO complaint, and eurozone countries are pondering retaliatory tariffs on American exports of everything from orange juice to whiskey and motorcycles.
There's also a much more specific problem where China is concerned.
The Asian behemoth itself uses a pretty expansive definition of national security; one that subsumes economic policies and other arenas. For instance, intellectual property theft is sort of built into Chinese industrial policy, because the government requires foreign companies to join with domestic — and often state-owned — ones to do business in the country. Both the Trump administration and previous White Houses have tried to walk China back from this behavior.
But now Trump is using a similarly expansive and all-consuming definition of national security to back these tariffs. It's a form of reciprocal hypocrisy that will lose the U.S. the moral high ground and sacrifice a fair amount of bargaining leverage over China in the process.
Of course, China really is guilty of dumping steel on global markets and driving down prices. For that reason, America slaps all sorts of restrictions and tariffs on Chinese steel and aluminum already. That's made them a miniscule share of America's imports. But the global price fall means all other imports are cheaper too, corroding America's domestic industry.
That leads to the one potentially sound argument for the tariffs: Since they apply to all countries, they could be a way to prod the international community into getting tougher on China.
Unfortunately, this sort of diplomatic leverage requires a firm and steady commitment to policy and for other countries to believe our promises. Trump's erratic behavior, and the sloppiness and cynicism of these tariffs specifically, undermine all of that.
This is all really a shame.
The elite policy consensus in favor of “free trade” and against protectionism really has become knee-jerk. It deserves to be challenged. One of Trump's few positive aspects is how completely unimpressed he is by that consensus.
Unfortunately, trade is also a genuinely complicated subject that requires careful balances. Any replacement for the elite consensus will need to be nimble, nuanced, and carefully constructed.
Instead, we're getting a hastily constructed policy premised on a transparently dishonest idea. The consequences could be disastrous.