Trump gets it wrong on tariffs
President Trump has styled himself as a knight in shining armor on trade issues, riding in to rescue American workers and companies besieged by foreign competitors, unprotected by U.S. trade deals and abandoned by previous administrations.
Trump’s recent maneuvering to impose tariffs on imported cars and auto parts, however, belies that narrative. U.S. auto companies and workers look more like bystanders conscripted to fight a bloody war they don’t support — and that could leave them worse off than they are today.
The president seemed to acknowledge as much this week, when he told a Fox Business Channel interviewer that tariffs on cars were part of his negotiating strategy for rewriting the North American Free Trade Agreement. If the terms agreed to by Canada and Mexico aren’t “fine,” Trump said, “I’m going to tax their cars coming into America, and that’s the big one. You know, the cars are the big one. We can talk steel, we talk everything. The big thing is the cars.”
Among other disputes that have bogged down the NAFTA talks, the Trump administration is pushing to raise the percentage of a car’s major components that must be made within the region in order for it to qualify for duty-free treatment. It’s not clear whose interests that push serves. As U.S. manufacturers have pointed out, supply chains are global now. A tougher requirement that parts be made in the region could punish General Motors and Ford at least as much as it would foreign automakers.
The idea of a 20% tariff on imported cars surfaced on May 23, when Trump ordered the Commerce Department to investigate the national security implications of car, truck and parts imports. That’s a problem right there: Citing “national security” as a pretext to protect the U.S. production of cars even though a plentiful supply is available from our close allies makes a mockery of World Trade Organization rules.
In fact, it’s just the sort of rule-swallowing exception that China has made its stock in trade — see, for example, the Great Firewall that blocks foreign websites and information-technology products. It’s also the rationale the Trump administration used to impose tariffs on global steel and aluminum imports. By misusing the “national security” exception, Trump is only encouraging other countries to do the same as a way to shield of their own goods and services.
This is Throwback Thursday leadership, borrowing techniques from the days when trade rules were loose and compliance was voluntary. Countries used to deploy steep new tariffs and quotas to gain short-term advantages until their trading partners retaliated. A good example is the “chicken tax,” a tariff that European countries imposed in 1962, which led the United States to retaliate with its own levies. One of them was a 25% tax on imported light trucks that remains in effect today, something that Trump neglects to mention when complaining about 10% European tariffs on U.S. cars.
By the 1990s, U.S. policymakers came to see that it would be better to have enforceable global rules backed with binding dispute resolution. They helped sell that idea to the rest of the industrialized world, leading to the creation of the World Trade Organization in 1995.
Trump’s eagerness for negotiating leverage doesn’t stop with car tariffs. A draft bill, leaked to Axios, would give the president authority to raise tariffs virtually at will as he seeks to rewrite existing deals and undo concessions made by his predecessors.
Congress first empowered the president to cut deals on tariffs more than 80 years ago — but with a goal of lowering trade barriers, not raising them. Lawmakers would be out of their minds to give yet more authority over tariffs to this White House.
Meanwhile, responding swiftly to the steel and aluminum levies Trump imposed last month, Canada, the European Union and China have not simply conceded to U.S. demands — instead, they’ve all retaliated with tariffs on billions of dollars’ worth of U.S. exports. The rest of the world may like selling to U.S. consumers, but they don’t need us as badly as they did in previous decades; the U.S. share of the global economy is about half what it was in 1960. To expect car tariffs to produce a different result is to ignore what’s happening right before our eyes.