Import tariffs on industrial commodities like steel and aluminum also act as a tax on exports.
The Trump administration will impose new tariffs on key U.S. trading partners—Canada, Mexico, and the European Union— on the grounds that their exports of steel and aluminum pose a threat to the national security of the United States. Tariffs are always bad policy because they amount to the government picking winners and losers, but these tariffs are a pop fly with the bases loaded, one run down in the bottom of the ninth.
Raising tariffs is raising taxes, and tariffs are a tax that is paid by consumers, not producers. Simply put, consumer goods such as sodas, cars, electronics etc. will increase in price. Tariffs also reduce purchasing power, putting the brakes on the growth of our economy. And, import tariffs on industrial commodities like steel and aluminum act as a tax on exports, reducing our competitiveness in international markets.
Tariffs on our closest allies put us in conflict with the very countries who are our strongest allies in confronting the abuse of international trading rules by China. The underlying issue is Chinese overcapacity in steel production, which is depressing prices worldwide, and more broadly China’s free-riding on the global trading system. China is a large country and a nuclear power; disciplining their behavior will not be easy – and picking fights with our allies won’t make it any easier. In effect, these tariffs strengthen China’s position, not ours.
Finally, these tariffs threaten the integrity of the global trading system that the United States has built over the past 70 years. Using a national security exception to argue that our tariffs are not subject to international rules, an argument that has rarely been used, encourages others to do likewise – China, for example – ultimately undermining our ability to enforce those countries’ commitments in the future. We carefully negotiated a system of trade commitments that open markets where America is competitive and limit market access where we are a relatively high-cost producer. Weakening those commitments is a risky strategy.
The President asserted in his inaugural address, “Protection will lead to great prosperity and strength.” History suggests that the result is unlikely to bring great prosperity or great strength.
