Don’t Worry About Trump’s Tariffs

It seems clear that protection for the profits of pharma and software companies agitates business writers and some economic policy experts far less than protection for manufacturing sectors heavy with blue-collar jobs. Is it any real shock that many believe that the rules of the game governing globalization have been rigged against typical American workers?

If we accept for a second that inconsistently applied first principles won’t get us very far in assessing the pros and cons of last week’s tariff announcements, it’s worth thinking about the specific challenges facing American steel and aluminum producers and how trade policy might help them.

Start with something everybody agrees upon: Global steel and aluminum sectors have large amounts of excess productive capacity. The problem is large enough that last year the Organization for Economic Cooperation and Development issued a report on global excess steel capacity.

Generally, excess capacity pushes down prices, and less efficient firms that cannot make profits at these lower prices simply go out of business, pulling down capacity until it matches demand. But foreign producers of steel and aluminum, efficiently or not, have often been insulated from this competitive winnowing by government industrial policy that props them up — a fact bemoaned by both the G-20 and the Obama administration.

The proposed tariffs can provide a countervailing force against these foreign subsidies and protect American metal producers until a comprehensive solution is found. Am I confident that the Trump administration will back a smart and efficient solution to the larger problem? Not really — but this doesn’t mean we shouldn’t be happy to have some breathing room to find one.

Some would argue that we should just see foreign steel subsidies as a boon for American consumers, who can now enjoy lower prices driven by cheaper steel. But here’s where the relative size of these “killer” tariffs becomes clear — we’re talking about fractions of a percent in prices, one way or the other. And again, no one is telling pharmaceutical companies and their workers that their protections need to be stripped away so that others can enjoy cheaper prices.

The real problem with last week’s tariffs is that they’re an ad hoc and insufficient ameliorative fix for continuing policy failures that have decimated American manufacturing employment for almost two decades. The two main failures have been macroeconomic policy that has accepted long and slow post-recession recoveries, and exchange rate policies that have allowed the value of the dollar to stick at levels too high to balance (or even nearly balance) manufacturing trade flows. This means that each job displaced by manufacturing imports is not balanced by a job supported by manufacturing exports.

It’s tempting to evaluate economic policy these days with a rule of “if Trump is for it, I’m against it.” After all, this rule would lead to the right stance far more often than not. But a better framework is to ask: “Is it good for the bottom 90 percent of American workers and the families they help support?” And on this latter question, criticism of last week’s tariffs largely misses the mark.