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Tariffs and Nostalgia. Counterproductive and Shortsighted Strategy of Donald Trump

President Trump’s announcement that he would impose tariffs of 25 percent on steel and 10 percent on aluminum creates the danger of a global trade war. Other countries can impose retaliatory tariffs under the rules of the World Trade Organization. Many observers think, or at least hope, that the threatened tariffs will never be imposed and instead are a negotiating gambit to compel Canada to agree to changes in NAFTA and to force China to make various concession such as dropping its practice of forcing US firms to share their advanced technologies with Chinese business partners. Such a relatively hopeful outcome would depend on Trump showing restraint and negotiating skill, traits so far in scare supply in his Administration. 

Even as a way of achieving Trump’s self-professed aims, above all increasing the number of American industrial jobs, the tariffs if imposed will fail. US industries now are embedded within global production chains. Raising the costs of steel and aluminum will increase the prices of US finished goods, making them less competitive in worldwide markets. Non-US and US corporations alike will get around the tariffs by shifting production away from the US and then importing finished goods that won’t be subject to tariffs event though they contain the same aluminum and steel that would have been taxed if they had come into the US in raw form. There are less than 140,000 steelworkers left in the U.S., but more than 6.5 million workers employed by steel-consuming manufacturers. Even if Trump preserves all the steelworker jobs, he will endanger far more in the steel-consuming firms that will shift production abroad or lose out to foreign competitors. The same is true of aluminum, especially in the high-value aviation industry. 

Why is Trump pursuing such a counterproductive and shortsighted strategy? There are three reasons. 

First, as with everything Trump does, his ignorance and unwillingness to take the time and exert the self-discipline needed to learn facts means that he adopts policies that are poorly designed and inappropriate for the goals he says he seeks. In addition, he has deliberately hired aides who have contempt for government and for expertise. That means the people who are supposed to design trade policy are ignorant and sure that if they do the opposite of what was done before they will get a good outcome. Neither Trump nor his Trade Representative nor his Commerce or Treasury Secretaries consulted with the career officials in their departments who could have guided them to effective policies. 

Second, Trump has an inflated sense of his negotiating ability. He really believes the fantasies and exaggerations about his business career that are contained in his ghostwritten book, The Art of the Deal. He thinks that if he threatens to impose tariffs or to withdraw from trade treaties then other governments will come to him to negotiate, and that he will be able to use the leverage of tariffs and isolationism to extract good terms for the U.S. Certainly, the fact that the U.S. runs a trade deficit with most other countries could be a source of leverage. However, to use that leverage effectively Trump and his team would need to have a clear idea of what concessions are most valuable. Over decades the U.S. has gained much in trade treaties based on a clear strategy of sacrificing old heavy industries and their workers in favor of global access for U.S. high-tech, finance, and entertainment. 

Of course, that strategy has caused unemployment and hardship for workers in those old industries, and Trump won the 2016 election in part because those abandoned workers were excited by Trump’s anti-trade rhetoric. However, now Trump is president and he needs to deliver jobs. It is too late to revive those old industries. A smart trade policy needs to focus on viable and rising industries, some of which are the high value manufacturing that will be harmed by the higher steel and aluminum prices caused by Trump’s tariffs. Others will be harmed by the retaliatory tariffs other countries will impose on the US. Green energy, which is growing and provides high wage jobs that are hard to outsource since they are mainly for installers who have to do that work on site within the U.S. will be hurt by Trump’s fixation on coal and oil. So unless Trump changes his approach he will smother the vibrant sectors of American industry. The U.S. Department of Energy

Reports that in 2017 nearly 1 million Americans worked in the energy efficiency, solar, wind, and alternative vehicles sectors. This is almost five times the current employment in the fossil fuel industry, which includes coal, gas, and oil workers. 

Finally, Trump’s focus on the tiny steel and aluminum industries and on declining oil and coal is the result of nostalgia as well as ignorance. Just as Trump yearns for an America where most people are whites of European origin and women were subservient to men, so he imagines that it also is possible to restore the jobs profile of the mid-twentieth century when heavy industry, oil, and coal were huge sources of employment. Trump’s nostalgia is shared by American workers who remember when their jobs were well-paid, secure, and came with generous benefits including health care and a retirement plan. Those dispossessed workers confuse the source of those good jobs. Those workers did well, not because of the particular industries in which they worked, but because they were unionized. Unions, not steel, oil, or coal make jobs good. 

Jobs for less educated American will get better only if unions revive. However, Trump and the Republicans do everything they can to undermine unions. Democrats have not been as forceful and clear as they could be about the importance of unions, and efforts to revise labor law to help unions gain members have been a low priority for Democrats when they are in power. Trump’s inevitable failure to revive old industries or to raise workers’ pay in old and new sectors will create an opening for an alternate analysis and program. It remains to be seen if Democrats will recognize and seize that opportunity.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.