President Trump announced today that the US that his administration would impose a 25 percent tariff on all imported steel and a 10 percent tariff on imported aluminum, the New York times reports, on the grounds that other countries’ trade practices endanger American national security by undermining domestic production. According to the Times:
This action may create some jobs in domestic metals-producing industries, cost some jobs in fields where steel and aluminum are inputs, and push consumer prices a bit higher. The large and dynamic United States economy can handle it.
The risk comes from the potential ripple effects.
Affected countries may well retaliate by ordering tariffs on American goods, and they could carefully target goods to cause economic or political pain. American exporters — whether they sell passenger airplanes or soybeans — should be nervous about the next shoe to fall. There are few winners in an all-out trade war like one that enveloped the world economy in the 1930s.
In particular, the Trump administration’s invocation of national security concerns could set a precedent in which China and other nations are willing to use national security as grounds for tariffs, hurting the ability of the World Trade Organization to arbitrate disputes.
The real risk isn’t that steel and aluminum are a bit more expensive, though that is likely to be the case. It’s that an entire system of global trade, which the United States helped build, might be undermined.
The Times’s note of caution is a reminder that law matters. I suppose tariffs grounded in national security concerns may indeed be one way to help steelworkers, but it’s hard to imagine that there aren’t others that could assist even more, with fewer risks. Worth considering: increasing infrastructure investments, launching an infrastructure bank, progressive taxes and relief for the middle class, smarter IMF restrictions for currency manipulation, and meaningful labor protections in trade pacts.