Tariffs open can of worms Trump won’t be able to get back on

For some months, commentators — particularly Democrats — have been taunting President Trump for being “all talk and no action” on trade.

Well, with his decision to place sweeping tariffs on steel and aluminum (25 percent and 10 percent respectively) the president has really stuck it to his critics — and in the process, exposed many U.S. sectors and consumers to expensive and destructive retaliation that will render the U.S. less competitive and sap incomes.

{mosads}It cannot be argued — as with some issues — that the president was uninformed or even ignorant of the details (think health care) or consequences of his actions. On Friday morning, he defiantly tweeted that “trade wars are good, and easy to win.”

He seems to be reveling in the scramble that will now ensue by nations attempting to have the U.S. exempt them from the draconian tariffs, as allowed under the law the administration has invoked for its proposed actions. No matter how this plays out in coming days and weeks, here (briefly) is the likely fallout.

First, the episode has exposed for all the world to see — our friends and our adversaries — an administration in chaos. Press reports relying on contending White House staff members have detailed a 24-hour period during which the decision was made to invoke the tariffs, then seemingly reversed and finally reversed again with the sudden announcement by the president himself — stunning some of his top economic advisers.

For Washington insiders, the decision process ended in a triumph for the “America First” cohort of the president’s entourage — Secretary of Commerce Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and the now ascendant trade hawk, Peter Navarro.

National Economic Council Director Gary Cohn “got rolled and was entirely kept in the dark,” an informed observer told The Washington Post. This public defeat and humiliation will only add to the speculation that Cohn and the more internationalist wing of Trump’s White House staff will give up and exit.

Second, economists are virtually unanimous in holding that the steel/aluminum tariffs will backfire and ultimately hurt the overall U.S. economy. There are many reasons for this, but one basic fact stands out:

The steel-using industries in the United States (from auto parts, to farm and construction machinery and even metal for beer and soda cans) are far more vital to the U.S. economy than the steel and aluminum industries. 

For instance, steelmakers employ some 140,000 workers, while steel-using industries provide jobs for 6.5 million employees.

Third, the decision to base the case for the steel/aluminum tariffs on a national security argument will also backfire and come back to haunt the U.S. in the future. The world trading system, embodied in rules negotiated in the World Trade Organization, does provide for a national security exemption.

But for decades, major trading nations have been wary of invoking national security as a rationale for trade protection. The reason is that the rule is self-executing: that is, it is left to each individual nation to decide the scope (and limit) of national security as it impacts trade and investment policy.

The fear, which could now be realized with the U.S. gravely misguided action, is that the exemption will become a widely utilized protectionist weapon. 

The United States is likely to see this unintended consequence play out quite soon. The Trump administration has announced that it will retaliate against China for its mercantilist protection policies, particularly in the information and telecommunications sectors.

But China has recently passed two laws related to security: the National Security Law and the Cybersecurity Law. In defense against future U.S. actions, they will now have a strong incentive to invoke national security as a defense and rationale for the web of laws, regulations and other hidden barriers to foreign competition in these high-tech sectors.

In sum, few administrations have had the honor and pleasure of setting such a record of folly over a two-day period. Congratulations, Mr. President!

Claude Barfield, a former consultant to the office of the U.S. Trade Representative, researches international trade policy (including trade policy in China and East Asia), the World Trade Organization (WTO), intellectual property and science and technology policy as a resident scholar at the American Enterprise Institute.