A Broader Look at Trump’s New Tariffs

By Lindsay Tausch

In a meeting with steel and aluminum industry executives on March 1, President Donald Trump announced that he would impose a 25% tariff on imported steel and a 10% tariff on imported aluminum. The announcement has garnered support from Democrats and backlash from Republicans, reflecting developments in the positions of both parties on foreign trade. Democrats especially have shifted towards a more protectionist stance, increasing their support for tariffs and rejecting the types of trade deals they once supported. Republicans, who were slowly shifting toward a more pro-trade stance prior to the 2016 election, have become more protectionist since Trump’s inauguration, reflecting tension between Trump’s “America-first policy” and the pro-trade positions of other GOP lawmakers.

Trump’s tariff announcement ended heated debate within his administration. On opposite sides of the issue are White House Trade Advisor Peter Navarro and Chief Economic Advisor Gary Cohn. Peter Navarro represents the leading voice within the administration in favor of the tariffs. Navarro criticizes the World Trade Organization for failing to take action against Chinese overproduction of steel and aluminum, which he argues burdens U.S. producers because it lowers the global prices of these metals. Navarro summarized his position on CNN’s “State of the Union,” saying, “We want fair and reciprocal trade, and the World Trade Organization needs to adapt accordingly.”

Other White House advisors, including Cohn, do not share Navarro’s protectionist stance. Cohn voiced his concern about the increases in steel and aluminum prices that the tariffs will cause. Republican lawmakers seem to support this position. Senator Ben Sasse of Nebraska recently released a press statement, which captures the Republican stance: “The President is proposing a massive tax increase on American families. Protectionism is weak, not strong. You’d expect a policy this bad from a leftist administration, not a supposedly Republican one.”

Contrary to Sasse’s statement, President Trump’s tariff announcement should come as no surprise to followers of the 2016 election. Trump maintained a firm antitrade position throughout his campaign, opposing the North American Free Trade Agreement (NAFTA) and Trans-Pacific Partnership (TPP). His protectionist stance is consistent with the current Democratic position on foreign trade. In fact, Democratic candidates Hillary Clinton and Bernie Sanders also opposed the TPP during their campaigns. The official Democratic platform on trade holds that countries, especially China, disadvantage American companies through unfair trade practices, such as devaluing currencies and flooding global markets with cheap products. The platform calls for stronger enforcement of current trade deals and a more guarded reaction toward any future agreements. In contrast, the Republican platform is more pro-trade. While it does call for agreements that put “America first” and for an end to unfair trade practices, it supports open markets, calling for an agreement in which “free trade will truly be fair trade for all concerned.” House Speaker Paul Ryan maintained this position in response to Trump’s most recent announcement, voicing his concern that other countries might impose their own tariffs in retaliation. “We are extremely worried about the consequences of a trade war,” said Ryan, “and we are urging the White House not to advance with his plan.”  

Proponents of the steel and aluminum tariffs argue that the tariffs will create jobs and support national security. The tariffs, which are effectively taxes on imports, will create a price differential between imported and domestically produced steel and aluminum. The price differential should increase demand for domestic production, improving the domestic steel and aluminum industries and therefore helping the American workers within them. Though it supports the job creation argument, the Trump administration cites national security as its main impetus. Steel and aluminum are key materials in the production of military equipment. A military conflict could prevent the U.S. from importing these metals, disrupting its ability to prepare for war.

Critics point out that the tariffs will harm consumers and may cost more jobs than they create. The tariffs will raise steel and aluminum prices, since they will prevent companies from purchasing these metals at a cheaper price from other countries. In turn, the tariffs will increase the prices of products made with steel and aluminum, particularly automobiles, airplanes, and construction equipment. Higher prices will decrease demand for these products, causing these industries to reduce production and lay off workers. A study by Trade Partnership Worldwide found that the steel tariff President George W. Bush imposed in 2002 destroyed 200,000 more jobs than it created.

Lindsay is a freshman in the College studying economics.

 

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