Trump's Disastrous Thinking on Trade

15/07/2017 12:00 - 16 total view

Apparently, Donald Trump's administration is about to release its report on the national-security implications of steel imports. This week the president again complained about the dumping of steel in the U.S. market, and talked of the need for tariffs or quotas. "Maybe I'll do both," he said.
Either would be a terrible idea. Blanket tariffs would punish American manufacturers, jeopardize jobs and growth, needlessly raise consumer prices, burden U.S exporters by inviting retaliation, and rashly undermine the global system of resolving trade disputes. Import quotas would accomplish all of the above without raising revenue and with an added dose of administrative complexity.
And for what?
Trump's bluster aside, such measures won't bring back jobs. Although steel employment has been in long-term decline, that's more the result of technological advances than of trade imbalances. The last time the U.S. imposed broad steel tariffs -- under President George W. Bush, in 2002 -- it worsened price increases that led to 200,000 jobs losses and $4 billion in forgone wages. Don't expect better this time around.
Likewise, the idea that such protectionism is necessary for national security is absurd: Only 3 percent of domestic steel production currently goes toward defense or homeland security, while the majority of imports comes from allies such as Canada and South Korea. Invoking national security on such a flimsy basis only encourages trading partners to do the same -- and on plenty of other products besides steel.

Nor would these measures do much to change China's behavior, as Trump has sometimes alleged. China may well be unfairly supporting its steel producers. But given the small percentage of its steel exports that go to the U.S., broad tariffs and quotas won't be much of a deterrent. A better way to address unjust subsidies is by continuing to impose targeted sanctions and to keep up the pressure on China at the World Trade Organization, as the U.S. has successfully done for years.
Trump's mooted protectionist measures would be economically misguided and strategically self-defeating. That's why much of American industry, most of Trump's own cabinet, and most every reputable economist opposes them. If he goes ahead, it will be his biggest economic policy mistake to date.
Source: Bloomberg