The Trump administration appears to be ignoring the advice of more than 1,100 economists, including 15 Nobel laureates, who recently advised that “increased protective duties would be a mistake.” The announcement that steel and aluminum tariffs will be expanded to Canada, Mexico, and the European Union (EU) is the most recent signal that the administration is rejecting basic economics. New tariffs will increase prices for U.S. manufacturers and consumers, undermining the administration’s efforts to boost economic growth.
As NTU has pointed out, increased tariffs on steel and aluminum will also weaken many industries that are critical to U.S. security.
It’s time for the Trump Administration to take a new approach to trade negotiations. Instead of pursuing mutually beneficial win-win agreements with U.S. allies, government officials used the threat of tariffs in an attempt to coerce our trading partners to accept U.S. demands. It appears our allies have called their bluff, and the result will be economically damaging U.S. tariffs on steel and aluminum followed by the imposition of retaliatory tariffs on American exports by foreign governments. According to one study, U.S. tariffs on aluminum and steel combined with foreign retaliation on U.S. exports could destroy nearly 470,000 American jobs.
Some defenders of the administration’s approach claim it is actually one that is intended to increase free trade by using the threat of U.S. tariffs to leverage reductions in foreign barriers. Aside from the question of whether that is a good negotiation strategy, in many cases U.S. negotiating objectives were not even directed at reducing trade barriers. Example include proposed quotas on steel from the EU and other countries, a so-called sunset clause (“this free trade agreement will self-destruct in five years”) for the North American Free Trade Agreement (NAFTA), protectionist domestic content requirements for automobiles, and repeated calls to reduce bilateral trade deficits instead of reducing trade barriers. In these cases, the administration was using the threat of new U.S. tariffs as an attempt to coerce our trading partners to accept protectionist policies.
President Trump should heed the advice of the 1,150 U.S. economists who advised him:
We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.
Few people could hope to gain from such a change. Construction, transportation and public utility workers, professional people and those employed in banks, hotels, newspaper offices, in the wholesale and retail trades, and scores of other occupations would clearly lose, since they produce no products which could be protected by tariff barriers.
The vast majority of farmers, also, would lose through increased duties, and in a double fashion. First, as consumers they would have to pay still higher prices for the products, made of textiles, chemicals, iron, and steel, which they buy. Second, as producers, their ability to sell their products would be further restricted by barriers placed in the way of foreigners who wished to sell goods to us.
Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.
Finally, we would urge our Government to consider the bitterness which a policy of higher tariffs would inevitably inject into our international relations. A tariff war does not furnish good soil for the growth of world peace.