Why Trump’s tariffs are a “complete sham”

Senior Columnist
Yahoo Finance

President Trump isn’t the first president to impose new tariffs on imports. Literally every president of modern times has done this.

But Trump is the first since the end of the Cold War to cite national security concerns as the basis for a major new tariff. And trade experts aren’t buying it. “It is a complete sham,” economist Gary Hufbauer of the Peterson Institute for International Economics told Yahoo Finance. “The Pentagon buys very specialized steel under the Buy America program. There’s no shortage of this stuff.”

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The U.S. government normally imposes tariffs on imports after a company or an industry complains to the government that a foreign competitor’s import prices are artificially low. The government investigates and determines whether cheap imports have caused any economic damage to U.S. firms. If so, the Commerce Department can impose tariffs on those imports as a remedy, to bring the final price of imports up to fair-market value and even the playing field.

The Obama administration imposed tariffs in this manner many times. In most cases, the tariffs were on narrow classes of products from a particular country, such as uncoated paper from Australia, steel nails from Vietnam or non-oriented electrical steel from China. President George W. Bush did much the same thing before him. The United States, like other countries, also files disputes with the World Trade Organization (WTO) when it believes another country is dumping products into its market at unfairly low prices. The WTO has some enforcement authority, but the majority of times, disputes are resolved through mediation.

Trump isn’t doing any of that with the new tariffs he’s seeking, which would amount to a 10% tax on all aluminum imports and 25% on all steel imports. Unlike Obama, Bush and most of his predecessors, Trump is invoking an obscure section of the 1962 Trade Expansion Act, which allows the Commerce Secretary to impose tariffs on imports if necessary for national security reasons. The last president to do this was Ronald Reagan in 1986, when the Soviet Union was still regarded as a competing superpower and the Berlin Wall still stood.

If you’re sympathetic to Trump’s view, you might think the United States needs to safeguard its steel and aluminum industries so there’s a ready supply of these raw materials when needed to build warships, tanks and fighter jets. But “buy America” laws already require the Pentagon to use domestic sources for most raw materials that go into weapons systems. And the Pentagon’s needs only account for about 3% of all domestic steel production. That suggests there’s plenty of steel for national security.

‘It’s all BS’

That’s unless you define national security much more broadly, which is basically what Trump is doing. A key Commerce Department report published in January argues that the nation’s roads, bridges, tunnels, ports and waterways form a “critical infrastructure” crucial to national security. And Trump now cites that report as the basis for protecting the domestic steel and aluminum industries. “It’s like saying a McDonald’s hamburger is critical to national security, because if I’m a soldier, I have to eat,” Hufbauer says. “It’s all BS.”

Unlike typical tariffs, which target specific products from specific countries, the Trump tariffs would apparently apply to all imported products within the protected category. Analysis by Chad Bown of the Peterson Institute finds that the steel and aluminum tariffs would hit Canada, the European Union, South Korea and Mexico—all strong U.S. allies, up till now—the hardest. Combined, they’d face about $8 billion per year in trading losses. China, which Trump railed against for unfair trade practices when he was a presidential candidate, would suffer just $689 million in annual trading losses.

Any country hit with these Trump tariffs would most likely counter with tariffs of their own on American imports. They might also file a dispute with the WTO. Trump doesn’t seem to care. He said recently that he didn’t think his tariffs would incite a trade war. But even if they did, Trump tweeted, “trade wars are good, and easy to win.” That could end up being one of the more memorable statements of the entire Trump presidency.

Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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