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Stubbing Our Toe on Tariffs

By John J. Metzler - UNITED NATIONS — Tariffs are in a sense like other taxes; easy to impose, hard to roll back, and usually employed for the “greater good.” Thus triggering tariffs creates a feel good solution, a political sugar rush, but often later a bitter backlash to those ordering them.

I feel that the Trump Administration’s decision to slap steel and aluminum tariffs on many of our global trading partners admirably makes the populist political case but misses the mark when it comes to practical economic effect and intended outcome. There’s no doubt American steel industries have been devastated for a generation by cheaper foreign imports. Equally, the overall trade playing field has not been even for the USA. American industrial workers have paid the bitter price with job losses from Pennsylvania to Illinois.

Three employees control the steel plant at Donawitz, Austria. / Lisi Niesner / Bloomberg
Three employees control the steel plant at Donawitz, Austria. / Lisi Niesner / Bloomberg

That’s why I have long supported Free trade, but Fair trade. Fair has been missing for a long time.

Steel tariffs of 25 percent will be slapped on countries which have flooded the American market with cheaper steel. China comes to mind with its overproduction and underpricing. But ironically it emerges that while China has become a huge global steel producer, it is not even in the top five countries exporting steel to the U.S. market!

America’s top steel imports come from Canada, Mexico and the European Union, all including our closest allies and trading partners.

There’s wisely been an exception for Canada and Mexico, our NAFTA partners. But why not European Union countries and NATO allies, Britain, Germany and Belgium?

Then there’s Japan and South Korea which are targeted too, but who comprise the key military allies in helping Washington solve North Korea’s nuclear weapons showdown.

Steel and aluminum clearly have a strategic component which is largely overlooked. The American steel industry was part of what President Franklin D. Roosevelt called the Arsenal of Democracy which helped win WWII.

Cities like Pittsburgh became the epicenter of production and prosperity. In 1952, a steel strike shutdown the industry confronting President Harry Truman with a major national crisis. But today would we even notice an American steel strike?

In the great steel town of Bethlehem, PA the mills are now closed replaced with bling bling casinos. Since the 1960’s the USA lost over 400,000 jobs in the steel industry. In the meantime, for the current 140,000 American steel workers, productivity has increased fourfold given technological innovation.

The Wall Street Journal adds Austria’s Voest Alpine Steel has invested in high end automation; a mere 14 workers produce 500,000 tons of steel annually. Back in the 1960’s such a mill would have employed over one thousand workers.

Indeed the tariff impulse is as old as the American Republic; Presidents Abraham Lincoln and William McKinley favored the measures. The Republican Party and the Democrats have both embraced and shunned tariffs over the past century. Recently, GOP House Speaker Paul Ryan and the Republican establishment firmly opposed Trump’s tariffs. Ironically, many Democrats
support it.

Surprisingly America’s steel imports comprise only about 2 percent of U.S. trade; yet the symbolism and perception far outweighs the seemingly small numbers. Symbolism creates misperceptions.

In the past twenty years, President George W. Bush slapped tariffs on steel while Barack Obama imposed tire tariffs on China. Protectionism creates a feel good solution which in the short term helps and in the long term raises cost, cuts choice, stifles competition and creates the conditions for global mistrust and turmoil.

Witness some European Union countermeasures to punish American states which voted for Trump; Wisconsin’s Harley Davidson motorcycles or Kentucky’s Jim Beam Bourbon. It’s a sandbox game of getting even ironically despite a growing U.S. and global economy.

German Chancellor Angela Merkel advised, “The best option would be (for the EU) to be excluded,” warning that nobody could win a “race to the bottom” given that tariffs risked “hurting everyone.”

Addressing the specific NAFTA issue, Canada’s Foreign Minister Chrystia Freeland views trade pacts as a “win-win” and not “a Zero-sum game; one guy wins one guy loses.” She stressed, “We really sincerely think a trade relationship is a Win-Win.”

When viewing the ultimate cost and effect of tariffs, the noted economist Milton Friedman put it best, “The benefits of a tariff are visible. Union workers can see they are ‘protected.’ The harm which a tariff does is invisible. It’s spread widely. There are people that don’t have jobs because of tariffs but they don’t know it.”

Yet, “The Donald” may still hit negotiators with a move nobody saw coming. The game is on.

John J. Metzler is a United Nations correspondent covering diplomatic and defense issues. He is the author of Divided Dynamism the Diplomacy of Separated Nations: Germany, Korea, China (2014).

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