President Trump’s trade practices are giving economists hives and Republicans the shakes. On the policy front, a remarkably wide array of economists agree that Trump’s protectionism is a loser. How do they know? For one thing, it has been tried before.
Former auto-industry czar Steven Rattner writes, “With the imposition of tariffs on steel and aluminum imports from some of our closest allies, we are now in a full-fledged trade dispute, if not an outright trade war. The lesson of our past efforts to use tariffs to reduce imports is that this strategy almost always ends in tears.” He makes several key points.
First, tariffs don’t really work. “In 2002, President George W. Bush imposed steel tariffs in an attempt to arrest a sharp decline in employment in the steel industry. . . . The import duties succeeded in arresting the drop in employment for a short while but then it resumed its steep slide. The tariffs were removed after just 21 months later due to retaliation (particularly by the European Union) and a ruling by the World Trade Organization that they did not comply with international rules.”
Second, tariffs in one area don’t contain the ensuing trade war, often with more serious consequences for more workers. Rattner explains that “the number of Americans employed in jobs that produce steel, aluminum and other metals is less than 10% of the number working in industries that use these metals. Tariffs have the effect of raising the price of an important raw material used by these companies, which ultimately costs jobs. The Bush steel tariffs are estimated to have cost 40,000 jobs in the steel-using sectors, far more than the number that was saved.” Even outside the manufacturing sector, tariffs impose serious costs.
Third, the consumer is the real victim. “Last November, President Trump imposed a 21% tariff on Canadian lumber imports, which amount to more than 25% of the lumber used by American homebuilders. Since then, lumber prices are up 32%. The National Association of Home Builders has estimated that the tariffs will result in about 9,400 construction jobs lost, while raising the price of the average single-family home by $1,360.” [Update: The association says that figure is now $9,000.]
What makes this even worse is Trump’s irrational obsession with trade deficits (which we don’t have with some countries on which we impose tariffs), premised on the notion we “owe” something to the countries with surpluses. The president seems to have no understanding that the dollars from foreign purchasers wind up back in the U.S. economy in the form of domestic investment, including employment of millions of Americans.
Rarely has an economic policy as dopey as this one been imposed for such a specious reason.
The bigger problem for Trump — who cares little for policy and makes up his own facts anyway — is the political one. In the face of Trump’s trade war, the Koch brothers have launched a political war with lawmakers who are enabling destructive trade policies. CNBC reports, “Koch network groups Freedom Partners, Americans for Prosperity and the Libre Initiative made it clear in an announcement Monday that they are opposed to Trump’s tariffs and that their media and PR blitz is determined to show the benefits of open trade policies.”
We’ve been arguing for years that the business community had better get into the political debate on trade. We’ve yet to see a vigorous or effective effort from big-business lobbyists, but the Koch brothers fortunately are putting their money where their mouths are, without regard to partisanship. This is not a free pass for Democrats; it is a boost to lawmakers of either party who vigorously back free trade. So long as docile Republicans blindly follow Trump’s self-destructive policies, they’ll face an advertising onslaught, as CNBC notes:
In a new outline of principles meant to promote free trade policies provided to CNBC, the network calls on the president to “reduce or eliminate trade barriers through international agreements.” The network argues for a four-pronged approach: modernizing the North American Free Trade Agreement, concluding an agreement with the United Kingdom, resuming negotiations on the Transatlantic Trade and Investment Partnership with the European Union, and returning to the negotiating table on the Trans-Pacific Partnership.
It also calls on the president to lift the recent steel and aluminum tariffs, as well as proposed levies on Chinese imports.
This policy focus may continue through 2020, creating more headaches for protectionist Republicans.
The protectionism issue is already popping up in the Tennessee Senate election to replace retiring Republican Sen. Bob Corker. A state Democratic Party spokesman tells me, “So now the question is whether or not [Republican Rep.] Marsha Blackburn will choose the Koch brothers or President Trump. [Former Democratic governor Phil] Bredesen has joined Sen. Corker in his full-throated criticism of the tariffs.” (On Monday, Bredesen tweeted, “I respect Senator Corker for putting Tennessee ahead of Washington politics. These tariffs do a lot of damage to TN businesses. For my part, I call on every Democrat and Republican who cares about our state to stand with him on this.”)
Otherpro-market donors should follow the Kochs’ example. If the GOP is going to go down the road of protectionism, nativism and xenophobia, its free-market supporters should give them the backs of their hands — and no campaign donations.