Forget Campbell’s soup and Coca-Cola cans. However silly Commerce Secretary Wilbur Ross looked waving them around on television, he was right: Steel and aluminum tariffs are not going to devastate household budgets. Nor, as some of the more emotional social media coverage suggested, are they harbingers of economic apocalypse.
No, the real risk is to exactly the thing Trump is promising to save: American jobs.
Free-traders have a tendency to get too fixated on the consumer benefits of trade. When restrictionists accuse foreign companies of selling us artificially cheap goods, free-traders retort that you don’t complain when a manufacturer wants to sell you goods below cost; you snap up those bargains. But politically, this argument has its limits. For free-traders have missed something important: People care much more about their roles as producers than consumers.
The United States has long been seen as a nation of empty consumerism, with Americans deriving status from how much they can stuff into their oversize homes. But that’s wrong; in fact, Americans are a nation of workers. Foreigners often remark that the first question any American asks you upon meeting is “What do you do?” Our jobs are our identities. And people will do a lot more to protect their identity than they will to get 20 percent off a new washing machine.
The correct message, then, is not lyrical rhapsodies about how marvelous it is that we’re pulling so many Chinese peasants out of poverty. It’s that trade wars cost jobs, good American jobs.
Let’s start by acknowledging that Chinese steel really does pose a problem for U.S. producers, just not the one that Trump and his fellow restrictionists imagine. The cheap Chinese steel flooding global markets isn’t there because the Chinese government has made a brilliant move to destroy U.S. steel producers and keep all those lovely profits. It’s there because they’ve done something stupid — or at least, a trifle overoptimistic.
The steel industry, like many heavy industries, is subject to periodic gluts, even if governments do nothing at all. That’s because steel foundries are very expensive to build. Once you’ve built them, that cost is “sunk” — you can’t get the money back by shutting down, because a steel plant can’t really be used for much else. So it makes sense to keep operating at a loss for a while, hoping prices will recover.
The problem is, if everyone does this — and they do — prices don’t recover, at least not until some producers go bankrupt.
China built a huge amount of steel capacity when it was growing at 10 percent a year; now that growth has slowed, that excess output is putting pressure on producers everywhere. But as Chad Bown of the Peterson Institute for International Economics points out, U.S. steel tariffs can’t solve that problem — as we’ve already discovered, because unbeknownst to most Americans, we already impose hefty “anti-dumping” duties on Chinese steel, higher than the tariffs Trump is proposing.
Unfortunately, steel is a commodity; if we impose duties on Chinese steel alone, then China will export to other places, and those places will export their domestically made steel to us. But simply broadening the steel tariffs won’t fix this problem; the tariffs will simply push the cost one step up the production chain, to manufacturers that use steel in their products.
Foreign finished goods will become relatively cheaper, so U.S. consumers will buy more of them. Meanwhile, foreign consumers will buy fewer U.S. exports. By the way, that probably means the trade deficit that Trump spends so much time ignorantly bemoaning will become even larger.
Remember, industries that consume steel and aluminum employ more Americans than steel or aluminum mills. These are “good” jobs, manufacturing jobs of just the sort that Trump has promised to protect. The products made by those industries will now become less competitive compared with foreign goods. They’ll lose domestic sales and export markets — and, with them, jobs.
And that’s not all. China’s exports to us are already considerably restricted. The hardest-hit will be other trading partners, the ones that buy plenty from us. And they will be itching to retaliate with tariffs of their own. Depending on how far this escalates — and given Trump’s temperament, it could escalate pretty far — those secondary losses could be quite substantial.
This is the story we need to be telling louder, clearer and more often. Yes, we Americans do love our cheap consumer electronics and our fancy German cars, and we’d hate to lose them. But those things are small comfort to a man who has lost the steel mill job where he spent eight hours a day for the past 20 years and is cheerfully told that, well, maybe he can retrain as a home health-care aide. That man will be devastated — and he will vote accordingly.
No one can blame him. But there are even more good people in other industries — construction and machine-making, canning and cars — who will suffer exactly that devastation if we go ahead with these tariffs. That doesn’t seem like a very fair trade.
Read more about this topic: