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All Trump's Trade Wars

Irwin M. Stelzer

To ask coherence of President Trump is to ask too much of a man with the attention span of a tweet, and for whom cognitive dissonance is not something he spends nights losing sleep over. So we have had large tax cuts, putting money into the pockets of consumers, which will enable them to increase their spending (saving is not in fashion in America at the moment). Which means they will buy more stuff, much of it imported, widening our already record trade deficit.

But the president doesn’t like trade deficits—job killers as he sees it—and so he has put tariffs on washing machines and solar panels and now is deciding what costs and restrictions to place on imports of steel and aluminium. A 1962 statute permits him to use tariffs or quotas if imports lead to “a weakening of our national economy that may impair national security.” Which he is assured by a report from Commerce Secretary Wilbur Ross that imports of steel and aluminium do.

But our economy is strong, not “weakening,” the profit outlook for the steel industry is “rosy” according to the Wall Street Journal, and tariffs are opposed by Defense Secretary Jim Mattis, who is responsible for our natural security. All of which makes it difficult to understand how Ross’ Commerce Department reached the conclusion it did. Unless you know a bit of background.

The first is that the Department of Commerce has what might be called a rather broad definition of the seemingly plain words “national security,” which it says “can be interpreted more broadly to include the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements.” The law, in their view, does not require that imports “are impairing the national security,” but merely that they “threaten to impair the national security” as very broadly defined. Since the president, like the Queen of Hearts in Alice in Wonderland, is capable of believing “as many as six impossible things before breakfast,” it is no surprise that his Commerce secretary turned to Lewis Carroll’s version of Humpty Dumpty for an interpretation of “national security” that means only what Ross chooses it to mean.

The second bit of background information relates to Ross himself. In an effort to relieve the pressure on steel prices created by China’s excess capacity, and its consequent dumping of steel on world markets, Ross persuaded the Chinese to agree to begin retiring that excess capacity. Ross hied to the Oval Office to inform his boss of his triumph. At which point Trump threw a fit and roared, “Tariffs, bring me tariffs.” There’s more. “Your understanding of trade is terrible. Your deals are no good.” And still more, “Wilbur has lost his step. Actually lost a lot of steps,” are among statements made by the president and reported by those in the room at the time.

No surprise then that Ross had a re-think, and his department now favors tariffs and quotas on steel and aluminum. Never mind that such measures will raise the costs of steel and aluminum-using industries such as autos, making them less competitive with imports that can keep their costs down by buying cheaper, un-tariffed metals. One economic study after George W. Bush imposed tariffs on steel in 2002 concluded that job losses in steel-consuming industries exceeded the number that would have been lost had the entire American steel industry gone out of business.

But legal requirements and the negative impact on user industries are minor matters compared with a political fact: no Republican president from the first (Abraham Lincoln) to the most recent (Donald Trump) has won an election without carrying the state of Ohio, a state in which the steel industry still matters. Ohio knows it wants tariffs, and if that causes job losses scattered among a lot of other industries and states, then so be it. Trump figures that those voters won’t make the connection between the job losses and the steel tariffs.

But voters in other states may do just that when the retaliations already being threatened are triggered. Bourbon is an important industry in Kentucky, home of Republican Senate Majority Leader Mitch McConnell; cheese exports are important to farmers in House Speaker Paul Ryan’s home state of Wisconsin; and Florida’s citrus growers would not like to face new tariffs because Trump is doing favors for Ohio. Florida can match Ohio’s 18 Electoral College votes and raise the bidding to 29. Leaving Trump to choose between the two states—unless this self-styled “very stable genius . . . really, really smart . . . great candidate” can figure out how to please both Ohio’s steel makers and Florida’s citrus farmers.

Trump is right about one thing: the world trading system is rigged against America. But he is fighting the wrong war (steel) at the wrong time (a robust economy) against the wrong enemies (many of our allies supply these metals to us). The right war—one worth risking a total trade war—should be over the industries of the future, such as artificial intelligence. The right time will be in August when the U.S. trade representative reports on China’s theft of intellectual property, providing a casus belli. The right enemy is China, which steals our intellectual property, discriminates against imports in favor of its own firms, coerces our corporations into surrendering their technology and lavishly subsidizes industries of the future.

If there is to be a trade war, make it one that matters, against a foe which studies show has far more to lose than we do, for reasons those Americans who will suffer from retaliation can understand.

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