Trump Plays Dangerous Game Of Chicken With Trade Tariffs
Trade: President Trump's decision to slap tariffs on steel and aluminum imports from the European Union, Canada and Mexico might be an effective negotiating tool to win further concessions on a trade deal, but it's not a good economic one. If it leads to a global beggar-thy-neighbor trade war, it could cost us all dearly.
Effective immediately, the U.S.
will impose a 25% tariff on steel and 10% on aluminum for foreign-made imports.
We understand why Trump has pursued this tack. Many of our past trade deals have been badly negotiated, giving away too much and getting too little in return. There's a difference between truly free trade and lop-sided trade, and sometimes it's hard to tell the difference.
And Trump has made an explicit link between national security and the economy. "We take the view that without a strong economy, you can't have strong national security," said Secretary of Commerce Wilbur Ross, in announcing the tariffs Thursday morning.
But now comes the hard part. Because we can certainly expect a tit-for-tat response from the EU, Mexico and Canada.
Already, German Chancellor Angela Merkel vowed a "smart, determined and jointly agreed" response to Trump's tariffs. And already, the EU has talked
about imposing billions of dollars in tariffs on U.S. exports, possibly including orange juice, kitchenware, peanut butter, clothing, shoes, washing machines, textiles, whiskey, motorcycles, boats and batteries.
For its part, Mexico said it will target bacon, apples, grapes, cheese and flat steel. Canada's retaliatory list wasn't revealed, but it did pledge a response.
So, a trade war now seems likely. And it might get even larger. In two weeks, the White House releases a tariff hit-list of 1,300 Chinese goods valued at $50 billion. China has vowed to respond in kind.
Get the picture?
Nor will they be without cost to the domestic U.S. economy.
As Competitive Enterprise Institute fellow
Ryan Young notes, "While the tariffs could potentially save 33,000 steel jobs, the harms to downstream industries from automobiles to construction to food production could result in a net loss of 146,000 American jobs. It also encourages America's biggest trading partners to raise their trade barriers, harming their economies as well as ours."
Tariffs = Higher Costs
Others note that steel tariffs will boost costs in a number of industries.
That's especially true of energy, where oil field and pipeline construction depend heavily on steel. "The cost of steel represents roughly 10% to 20% of the overal cost of construction and operating an oil field," writes
American Enterprise Institute Fellow Benjamin Zycher. "Pipelines often are made of specialty steels not currently produced in the U.S., and replacing that foreign output domestically will raise prices."
Not to mention that the U.S. will almost certainly be challenged in the World Trade Organization and likely will lose.
Trump is playing chicken with major U.S. trading partners, hoping they swerve at the last minute. The big question is, can Trump force can concessions in trade talks with with minimal damage to the U.S. economy, or
will a trade war lead to a nasty downturn in global markets or even hurt the U.S. economy's growth? What if no one in this game of chicken swerves?
These are legitimate questions. Trade is a dangerous weapon, one that can backfire on those who use it as one. Yes, not all trade deals are perfect. But to the extent they lead to freer trade, and more goods and services crossing borders, they represent
a net benefit to America — and to our trading partners.
We can only hope that these tariffs won't last, with a quick resolution of issues on both sides. The U.S. today needs Canadian, Mexican and European Union support on a number of issues, ranging from sanctions on Iran to stemming illegal immigration.
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