By Steven Globerman
May 22, 2018 at 5:00 am ET
Earlier this year, the Trump administration took significant actions against foreign imports in the name of protecting U.S. national security. Notably, it imposed a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum that were initially applied to all countries exporting those products to the United States. Subsequently, the U.S. Trade Representative gave a permanent exemption to South Korea and reached an agreement in principle with Argentina, Australia and Brazil while the exemption deadline for Canada, Mexico and the European Union has been extended until June 1. The exemptions appear to be bargaining chips, certainly in the North American Free Trade Agreement negotiations, as well as in U.S. efforts to influence trade policies elsewhere.
The Commerce Department’s justification for the tariffs was that imports of the metals threatened national security by degrading the American industrial base. The objection raised by critics was that higher prices for steel and aluminum would harm other parts of America’s industrial base, especially intensive users of steel and aluminum inputs such as the motor vehicle and commercial aircraft sectors.
President Donald Trump tried to disarm critics by asserting that foreign exporters would eat most of the tariff, but this is nonsense. In 2016, the United States imported around 30 million metric tons of steel. World production in that year was around 1,629 million metric tons. Hence, U.S. imports account for less than 2 percent of world output. This makes the United States a “price-taker” in the world market for steel — i.e., it has too small a share of the market to influence price by how much it buys. The same is true for aluminum. Americans will pay more for products that use steel and aluminum and domestic producers of those products will sell less than they otherwise would.
How does helping domestic steel and aluminum producers charge higher prices while hurting other sectors of the economy contribute to national security? Some defenders of the Trump administration’s actions argue that steel and aluminum are more important to national defense than other industries. This too is nonsense, since higher prices for steel and aluminum will make it more expensive for the military to acquire tanks, planes, guns and other critical defense equipment. That the Pentagon reportedly argued against the measure, because it could disrupt economic and security ties with allies, belies the relevance of the national defense justification of the tariffs. Indeed, such actions are encouraging allies such as Canada to seek closer economic ties with China, which cannot be a contribution to U.S. national security.
Precisely because the costs of tariffs outweigh the benefits in virtually all cases for the country imposing tariffs, it is difficult to make a credible argument for tariffs on grounds of national security, since it presumes that the United States is somehow safer by being poorer rather than wealthier and by having fewer rather than more allies. One can hardly imagine a more critical input to national security than oil. Nor, until the recent shale oil boom in the United States could one imagine a more politically threatened source of supply than oil imported from the Middle East. In the case of oil, the U.S. government building a stockpile of oil addressed the national security risk of a cut-off of Middle Eastern oil due to war or sabotage in that region. Indeed, building and holding larger inventories of critical inputs whose continuous supply is threatened is a standard action taken by commercial businesses. This is clearly a more efficient option for companies compared to internalizing the production of critical inputs for which they are relatively high cost producers.
Since promoting national security is a specious justification for a country to impose tariffs on imports, it would be good for Congress to eliminate the power of the president to take such actions. The campaign and election of Donald Trump underscores the incentive that any presidential candidate has to promise financial benefits to a relatively small number of key voting blocs with the costs spread over the rest of society. This incentive will arguably become more compelling in the future as voting behavior is driven increasingly by party loyalty, thereby making “swing” voters more electorally valuable. While individual members of Congress also have incentives to help their constituents, often at the expense of non-constituents, they are obliged to gain the support of a critical number of fellow members in order to do so. This makes campaign claims to grant special favors to key voters in Congressional elections less credible than when claims are made by presidential candidates.
The national security justification for threatening and imposing tariffs is much too convenient a legal option to make available for any U.S. president to exercise.
Steven Globerman is the Kaiser Professor of International Business and director of the Center for International Business at Western Washington University
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