Trade War Could Blow All the Tax-Cut Gains

PRESIDENT Trump said on Thursday he’s going to start a trade war next week, so at least we have a few days to prepare. Go buy a car fast. Trump said he’ll levy huge new tariffs on steel (25 percent) and aluminum (10 percent) on the grounds that our national security is threatened by the fact we have to import these goods. A ginned-up Commerce Department report, produced to order by the protectionist Commerce Secretary Wilbur Ross, claims the supposedly parlous condition of the steel and aluminum industries triggers something called Section 232 of a 1962 law in that they “threaten to impair national security.” This law hasn’t been invoked since 1983. What’s the new national security threat here?

There isn’t one. This claim is arrant nonsense. The United States is a major manufacturer of both steel and aluminum, and employs considerable numbers of people in both industries (140,000 in steel, 30,000 in aluminum). While these numbers were far larger half a century ago, both logic and history suggest that if we face a crisis moment when our access to these products in international markets is challenged, their domestic manufacture could be ramped up in no time.

We know this from what happened in World War II; in less than four years’ time after Pearl Harbor, America was responsible for half the world’s industrial production. We produced more planes in 1943 alone than Japan manufactured from 1939 to 1945.

To take a more recent example of what can happen in 21st-century America when there’s merely market demand alone, with no national- security implications, the fracking industry didn’t exist at all in 2007 and by 2015 it was employing an astounding 725,000 people.

America imports half its steel and 90 percent of its aluminum for a reason, and that reason is simply the workings of the market. If it were cheaper for companies who pay for the imports to buy these goods in the United States, they would be made in the United States. But it isn’t. Protectionists like the president claim we’re being taken by other countries, which are “dumping” their goods on us at unreasonably low prices.

As an economic concept, “dumping” describes the act of selling something at a price lower than the cost to produce it. This isn’t what’s happening with steel or aluminum. What’s happening is that it’s cheaper for these countries to produce steel at a lower price point and make a profit.

The fact they can do this is a benefit to American consumers, who pay lower prices for the goods they buy because the global market allows manufacturers and retailers to provide these goods at a more reasonable price.

And as it happens, we already have ways of penalizing those guilty of dumping and other unfair trade practices. According to the Trump White House’s own “Economic Report of the President,” issued last month, “the United States has won 85.7 percent of the cases it has initiated before the WTO since 1995, compared with a global average of 84.4 percent. In contrast, China’s success rate is just 66.7 percent.” And we do impose various small-scale punitive tariffs unilaterally.

The truth is that protectionism of the sort Trump will actively be practicing here isn’t about protecting the interests of American con- sumers. In fact, it’s a war against American consumers, because its explicit purpose is to raise the price of goods from abroad that’ll allow US manufactures to produce the same stuff at higher cost to make it worth their while to build facilities and hire workers.

Let’s say this works and over the course of a decade, 150,000 more people are employed producing steel. That sounds terrific — except there are 330 million American consumers. Think of it this way: Every single person in the United States is a consumer.

Trump has been taking victory laps over the GOP tax cuts that passed last year. But with this economically absurd action, he’s also effectively raising taxes on 330 million and privileging 150,000 workers whose jobs don’t even exist yet.

This is all about Trump getting to scratch an economically illiterate itch. From the 1980s onward, Trump has grumbled that the loss of manufacturing jobs in the United States isn’t due to worldhistoric changes in the world economy but rather is the result of theft on the part of other countries.

There’s a word for this. The word is: Stupid.

This is all about Trump getting to scratch ’ an economically illiterate it ch.