Tariffs are a loser
President Trump’s trade practices are giving economists hives and Republicans the shakes. On the policy front, a wide array of economists agree that Trump’s protectionism is a loser. How do they know? It’s been tried before.
Former auto-industry czar Steven Rattner writes, “The lesson of our past efforts to use tariffs to reduce imports is that this strategy almost always ends in tears.” He makes several key points.
First, tariffs don’t really work. “In 2002, President George W. Bush imposed steel tariffs in an attempt to arrest a sharp decline in employment in the steel industry . . . The import duties succeeded in arresting the drop in employment for a short while but then it resumed its steep slide. The tariffs were removed after just 21 months later due to retaliation (particularly by the European Union) and a ruling by the World Trade Organization that they did not comply with international rules.”
Second, tariffs in one area don’t contain the ensuing trade war, often with more serious consequences for more workers. Rattner explains that “the number of Americans employed in jobs that produce steel, aluminum and other metals is less than 10 percent of the number working in industries that use these metals. Tariffs have the effect of raising the price of an important raw material used by these companies, which ultimately costs jobs. The Bush steel tariffs are estimated to have cost 40,000 jobs in the
steel-using sectors, far more than the number that was saved.”
Third, the consumer is the real victim. “Last November, President Trump imposed a 21 percent tariff on Canadian lumber imports, which amount to more than 25 percent of the lumber used by American home builders. Since then, lumber prices are up 32 percent. The National Association of Home Builders has estimated that the tariffs will result in about 9,400 construction jobs lost, while raising the price of the average single-family home by $1,360.” [Update: The association says that figure is now $9,000.]
The bigger problem for Trump is the political one. In the face of Trump’s trade war, the Koch brothers have launched a political war with lawmakers who are enabling destructive trade policies. CNBC reports, “Koch network groups Freedom Partners, Americans for Prosperity and the Libre Initiative made it clear . . . that they are opposed to Trump’s tariffs and that their media and p.r. blitz is determined to show the benefits of open trade policies.”
We’ve been arguing for years that the business community had better get into the political debate on trade. We’ve yet to see a vigorous or effective effort from big-business lobbyists, but the Koch brothers fortunately are putting their money where their mouths are, without regard to partisanship. This is not a free pass for Democrats; it is a boost to lawmakers of either party who vigorously back free trade. So long as docile Republicans blindly follow Trump’s self-destructive policies, they’ll face an onslaught.