President Trump wants to tax steel coming into the United States. He isn't the first president to try this. George W. Bush put tariffs on a lot of steel imports in March 2002. Top Bush administration officials now say that was a mistake, and they are warning Trump not to make the same blunder.
“I don’t think it was smart policy to do it, to be honest,” said Andrew H. “Andy” Card Jr., Bush's chief of staff from 2001 to 2006. “The results were not what we anticipated in terms of its impact on the economy or jobs.”
Card is the latest high-ranking Bush administration official to warn Trump of just how bad it could get economically and politically if he proceeds. Josh Bolten, Bush's deputy chief of staff for policy in 2002, slammed Trump's tariffs.
“Whether the original thing was a mistake or not, and there’s a good argument that it was in 2002, there’s no question doing the same thing under 232 is a mistake of a much bigger magnitude,” Bolten said. He is now president of the Business Roundtable, an advocacy group for leading American executives. “This is a bad idea overall for the whole economy. "
The result of Bush's tariffs was a $30 million hit to the economy, according to a lengthy government report from the U.S. International Trade Commission in 2003. Studies by outside groups conclude that the United States lost jobs because of the move: The employment gains in factories that make raw steel were outweighed by job losses in other industries, especially at companies that take raw steel and make it into parts for cars and appliances. To put it another way, it cost about $400,000 per job saved in the steel industry, according to an estimate by the Peterson Institute for International Economics.
Bush originally intended to keep the tariffs for three years, but he ended them in December 2003. Trading partners, especially the European Union, threatened to retaliate with tariffs on Florida oranges and Carolina fabrics and textiles, and it became clear to White House staff members that it was backfiring.
“We didn’t expect it to cost us jobs,” Card said. “Once the tit-for-tat starts, there are unintended consequences. You don’t know the extent of how everyone else will react.”
The E.U. chose industries in politically important states that would get the president's attention, a tactic the European Union is using again with Trump by saying it would retaliate against Kentucky bourbon and Harley-Davidson motorcycles. Kentucky is the home state of Senate Majority Leader Mitch McConnell (R), and Harley's main production factories are in Pennsylvania, Wisconsin and Missouri, key states that went for Trump. The World Trade Organization also declared the Bush steel tariffs illegal, a further blow to the Bush administration that led to the swift end of import taxes months ahead of schedule.
The Bush administration tried to spin it that the tariffs had “achieved their purpose” of sending a message to other countries not to mess with the United States, but looking back, senior officials admit it wasn't nearly as straightforward as they thought it would be. Key allies were upset, and some industries were harmed. They cringe now to hear Trump Commerce Secretary Wilbur Ross and trade adviser Peter Navarro making it sound as though there will be no negative effects on American businesses or jobs from the tariffs.
“The impact of these tariffs from a macroeconomic point of view are zero,” Navarro told Fox Business on Monday. “The impact on the inflation rate are just close to zero. It’s like a nothing burger.”
Many in the Bush administration see it differently. Bush's top economists in the early 2000s — Greg Mankiw and Glenn Hubbard — signed a letter in July urging Trump not to impose tariffs, arguing that additional steel tariffs in particular would “damage the economy.” Mankiw is now a professor of economics at Harvard, and Hubbard is dean of the Columbia Business School.
“What we have learned over the years is that protectionism doesn't protect. Protectionism actually harms,” Bush commerce secretary Carlos Gutierrez told NPR.
There were 200,000 job losses from Bush's steel tariffs, according to a study by the Trade Partnership, a consulting firm that was paid to do the research by the industries that use steel and were hurt the most by the tariff. The Peterson Institute for International Economics, an independent think tank, said it's difficult to assess exact job losses solely from the tariffs, but their experts concluded that there were “net job losses” with few new jobs created in steel factories. Total steel jobs actually fell by over 13,000 during the tariff period, according to Labor Department statistics.
“We continue to be baffled by the willingness of unionized workers to believe that protection is a great benefit to them,” the Peterson Institute wrote in 2003.
Ralph Hardt, president of Jagemann Stamping, says his company is “still recovering from the 2002 tariff.” He fears the Trump tariffs “could be a repeat, if not worse.”
Jagemann employs 300 people in Wisconsin and 100 in Tennessee. Workers at his company take raw steel and fashion it into the parts used in cars, refrigerators and other household products. But he says after Bush's tariffs on steel, big companies purchased more finished parts from overseas instead of U.S. companies.
“These decisions are put in place for years. If they decide to build transmissions in Mexico or buy products overseas, then these decisions are decades long and really impact our economy,” Hardt said. He didn't lay off employees in 2002, but he says it held him back from expanding since his profits were way down as steel costs rose and he wasn't able to pass them along to the companies buying his products.
Much like Trump, Bush was convinced that he needed to act to save steel jobs and protect the domestic industry from foreign competitors such as China that were dumping cheap steel on the market to undercut United States competitors. Bush, who was generally seen as pro-free trade, surprised many business and GOP leaders by putting in place taxes on steel imports that ranged from 15 percent to 30 percent. It's similar to Trump's idea to impose a 25 percent tariff on steel.
But Bush excluded key countries from the tariff, which helped lessen the hit to the economy. It didn't apply to Canada, Mexico, Jordan, Israel and many emerging nations. The goal in Bush's mind was to go after countries such as China, Japan and South Korea that were trying to beef up their steel industries, so he didn't put the import tax on countries the United States had signed free trade agreements with already.
Trump is signaling a different approach: He wants to subject all countries to the tariff. Members of his administration, including Ross and trade adviser Narvarro, have said the president is open to excluding certain steel products that aren't made in the United States, but not excluding countries, at least initially. Canada, a close ally, sends the most steel to the United States, according to government data.
“To protect our Country we must protect American Steel! #AMERICA FIRST” Trump tweeted Monday. He suggested that if Canada and Mexico renegotiate the North American Free Trade Agreement to his satisfaction, then he would exclude them from the tariff.
“The underlying reason for Bush's tariff was not national security, it was unfair trade practices,” Card said. “I don’t think the Canadians are cheating us.”
Bush and Trump are also using different justifications for the steel tariffs. Bush used Section 201 of the Trade Expansion Act, which allows the president to investigate whether a certain industry needs “safeguard” protections from imports because there are so many coming into a country that it's harming the domestic industry. Trump is using Section 232 of the law, which is when the president declares there is a national security threat from the imports. What Bush did was a lot less severe and easier to defend under international law.
Under 232, “it’s a totally different magnitude of damage, not just to downstream industries, but to the system itself,” Bolten said.