The world should call Trump's bluff on tariffs

You can't keep giving the bully your lunch money

On Tuesday, Trump announced new tariffs on all imports of steel and aluminum. This generated a now predictable cycle in which foreign governments complained and threatened retaliation and lots of analysts wrote tweets and articles explaining why this is a bad idea, while fans of tariffs, like the union-aligned Economic Policy Institute, argued that taxing imported metals “preserves a tool that has helped shore-up critical domestic metals manufacturing with likely minimal impacts on overall consumer price inflation.”

It’s true that making metal more expensive has only a mild impact on overall consumer price inflation, because most people simply don’t consume that much metal.

From time to time, of course, we buy things like cars and refrigerators and high-rise apartment buildings that are made out of metal. But the cost of raw metal is a minority of the cost of any of those items; increasing the cost of metal by 25% percent increases the price of cars and fridges by significantly less than that. And metal-containing durable goods are themselves only a modest share of the consumption bundle.

The flip side of this, as neoliberal shills have been pointing out for years, is that raising the price of raw metal is a bizarre way to bolster manufacturing jobs. Steel and aluminum are inputs into the manufacture of cars, planes, and other complicated finished goods. The goal of a successful industrial policy is to move up the value chain. Jamaica, a poor country that has a lot of bauxite, should be trying to develop an aluminum industry. The United States of America is a rich country. Airliner manufacturing is a rare field in which we retain a clear lead over Chinese capabilities, but we’re on par with what they’re doing in the European Union, and China is trying hard to catch up. Canada and Brazil both have impressive aviation industries. With these tariffs, we’re kneecapping ourselves, and we’re kneecapping the American automotive and appliance industries in export markets.

But here’s the other thing: It’s not at all clear to me that these tariffs are actually going to happen.

Trump already dramatically announced steep tariffs on all Canadian and Mexican imports. But he delayed implementation by a couple of days. Claudia Sheinbaum and Justin Trudeau scrambled, and the tariffs were swiftly called off in exchange for superficial concessions from Mexico and Canada on border security.

But Trump said the tariffs were merely suspended for a month, setting us up to do this again soon. And then he announced these steel and aluminum tariffs, which apply to many countries, but particularly Canada as the number one exporter of metal to America. Maybe tariffs will, in fact, be imposed on at least some countries. But I’m betting (and the stock market seems to be betting) that there’s just going to be another “deal” and then another round of drama. That said, I hope I’m wrong. Not because I want to see higher taxes on foreign metals, but because I think this game Trump is playing is dumb and harmful.

Trade wars between the US and friendly countries would also be dumb and harmful, but Trump is clearly not going to stop with this behavior as long as it’s working for him.

Economic coercion not trade policy

There’s a long-running dispute about what Trump “really thinks” about trade, and I’ll say that I personally am increasingly uncertain that I have a handle on what I think he really thinks.

What’s clear, though, is what he’s actually doing.

And what he’s doing is economic coercion that’s closer to a sanctions or embargo regime than it is to classic trade policy that Americans have been debating since Alexander Hamilton’s Report on Manufactures.