Trump’s Tariffs Could Defeat Benefits of His Tax Cuts. Ask Reagan

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

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One of the ironies of trade protectionism is that tariffs and import quotas are what we do to ourselves in times of peace and what foreign nations do to u‎s with blockades to keep imports from entering our country in times of war.

We impose sanctions on American enemies such as North Korea, Russia and Iran because we want them to feel the economic pain of being deprived of imports.

Now we are imposing sanctions on our own country by punishing with tariffs in order to make Americans more prosperous. If ever there were a crisis of logic, this is it.

‎Donald Trump believes that his steel and aluminum tariffs will save thousands of blue-collar jobs. We know from our interactions with him that he truly cares about these workers in Pennsylvania, Ohio and other rust belt states. We do too and we don’t want factories to shut down.

Even if tariffs save every one of the 140,000 or so steel jobs in America, though, it puts at risk 5 million manufacturing and related jobs in industries that use steel. These producers now have to compete in hyper-competitive international markets using steel that would be 20% above the world price and aluminum that could end up between 7% and 10% above the price paid by our foreign rivals.

In other words steel and aluminum might win in the short term, but the‎ steel and aluminum users and consumers lose. For tariff hikes are really tax hikes.

‎Some of those 5 million jobs will be put in harm’s way. If they sell less to foreigners, the trade deficit goes up, not down. Since so many of the things Americans consumers buy today are made of steel or aluminum, a 25% tariff may get passed on to consumers at the cash register.

This is a regressive tax on low-income families. President Trump would be better served by examining the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending.

The Smoot Hawley tariff of 1929 signed into law by a Republican president, Herbert Hoover, helped precipitate and worsened the Great Depression. Richard Nixon’s 10% import surcharge contributed to the stagflation of the 1970s.

George W. Bush tried to save the steel industry by imposing tariffs on steel and if those tariffs worked, we wouldn’t be having this discussion today. ‎We tried to save the color TV industry with protectionist measures and instead they wiped out the domestic production.

We aren’t persuaded by the Trump administration’s claim that we need to impose these tariffs for national security reasons. Despite stiff competition from imports, many specialty steel producers are doing just fine and actually exporting steel to Mexico and Canada.

Meanwhile, Canada is the number one exporter of steel to the America. Does anyone really believe Canada is a national security threat to America?

What does worry us that Canada and Mexico are now both threatening retaliatory tariffs against America. This tit for tat trade breakdown could put the North American Free Trade Agreement in jeopardy. That could inflict severe economic damage to all three nations, and a stock market meltdown.

Mr. Trump should continue to make American producers more competitive in global markets through tax, regulatory, energy, and other pro-America policy changes that bring jobs and capital back to the United States.

That is happening at a furious pace right now as Mr. Trump has made America almost overnight the best and most reliable place in the world to invest. Steel and aluminum import tariffs work decisively against this goal.

In the early 1980s Ronald Reagan’s invoked anti-dumping provisions against Japanese steel. It was one of his few decisions he later confessed he wished he hadn’t made. ‎Mr. Trump will come to learn the same thing, and we hope it is sooner, not later.

Mr. Kudlow and Arthur Laffer and Stephen Moore, who participated in drafting this column, co-founded the Committee to Unleash Prosperity.

NY Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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