April 2018 Trumpeting Tariffs

April 2018 Trumpeting Tariffs

Trumpeting Tariffs

President Trump’s sudden decision on March 8 to impose major steel and aluminum tariffs caught nearly everyone—including his own staff—by surprise. Trump touted the tariffs as a way to “protect jobs” against “very unfair” foreign competition, but in reality, tariffs end up hurting national income and cost jobs. Trump needed his action to be sudden because of the strong opposition to protective tariffs in the Republican Party, in Wall Street, and in his own White House. House and Senate leadership said they opposed the move and his chief economic policy advisor, a former president of Goldman Sachs, resigned. Trump’s disregard for his own advisors and party leaders demonstrates how little credence he gives to informed opinions around him when making far reaching policy decisions.

Nevertheless, at his rally in Western Pennsylvania supporters cheered. Trump’s simple approach to a complex issue such as immigration – build a wall – is similar to his response to losses of blue collar jobs – impose a tariff. There are many possible policy responses to the stagnation of wages and loss of blue collar jobs that do not impose the costs and potential damage to the economy of high tariffs. Trade by definition benefits both parties in a willing transaction. Foreign trade is about 14% of US national income. If we put up tariffs and others reciprocate by imposing tariffs, then the income of both countries goes down. We know the failures of tariffs from our own history: the high US tariff in 1930 that was supposed to protect US jobs ended up hurting our national income and lowering the income in other countries.

We learned from our failure. Since 1945 the US has been the leader in establishing international agreements such as the World Trade Organization (WTO) designed to stimulate trade and avoid unfair trading practices such as “dumping” – that is, exporting goods at less than cost. The Trump administration has not complained to the WTO about steel exported to the US, no doubt because it thinks it does not have a case it thinks it can win. When the US has a good case against unfair trade practices, it has won most of the complaints it has brought to the WTO.

The way to more and better paying blue-collar jobs is not to reduce trade but to encourage competitiveness, productivity, labor mobility, and training. To remain profitable steel has increased productivity and reduced the amount of labor needed for the same output. Forty years ago, it took around ten person hours to produce a ton of steel; with today’s technology it takes less than two. Reductions in low-skilled jobs have been accompanied by openings of well-paying and safer jobs. Yet many positions remain unfilled due to lack of workers with the necessary skills. Government policies should focus on stimulating investment, including investment in education and training to create more and better paying jobs, while maintaining competitiveness, not by cutting back on trade.

 

— Warren Clark and Mariellen Jewers, WNDC Task Force on Economic Policy