The Danger and Potential of the Trump Tariffs

The situation is not as simple as pundits on both sides are portraying it as being

On Thursday, President Trump authorized tariffs on imported steel and aluminum, and people on both sides of the issue have voiced strong opinions. However, it is not as simple as proponents and detractors make it seem. In fact, it is quite complicated.

National Security

One justification for these tariffs is based on national security concerns (this also happens to be the administration’s legal justification for the authorization of these tariffs). A country needs to be able to produce the materials needed for war. The duties would protect these critical industries, and it is true we need certain industries to be ready to produce in case of war. However, it would be extremely rare for things to become dire enough to warrant tariffs. They certainly are not today.
In a recent memorandum, Secretary of Defense James Mattis explained:
“The U.S. military requirements for steel and aluminum each only represent about three percent of U.S. production. Therefore, DoD does not believe that the findings in the reports impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.”
In other words, we only need a small fraction of our current steel and aluminum industries to satisfy our defense needs. Protecting industry vital to national security is a legitimate use for tariffs. However, our steel and aluminum industries are capable of producing well more than is needed from them. Furthermore, as we saw during the Second World War, the United States is capable of massively reallocating industry to suit war production demands.
Of course, this memo undercuts the entire legal argument that the Trump Administration is using based on Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862). With that said, this information still does not make these tariffs unlawful. The statute states that the invocation of this clause is based on “the judgment of the President.” If the President determines duties are necessary to promote national security, then he has the authority to proceed. In the end, Congress is responsible for this arrangement and should reclaim their authority to levy tariffs by passing legislation.

Retaliation

Other countries are not going to just sit by and watch as the United States imposes tariffs. They will respond in kind, hurting American consumers as prices rise. Even if we lived in a world where no country would retaliate, it is important to understand that when companies are taxed, that tax is passed onto consumers. When tariffs are placed on imports, the prices of those products will increase.

Trade Surpluses and Deficits

President Trump continually complains about our trade deficit, but trade deficits are not necessarily bad. Venezuela has a large trade surplus, and their economy has basically collapsed. These statistics merely reflect what the market desires. The market recognizes that other countries can produce specific products at lower costs. There is a reason why we can get clothes for such low prices.

But…

There is one more part of the story. The most compelling argument for tariffs like the ones authorized by the Trump administration is that it allows us to respond to hostile economic actions utilized by other countries.
The world community does not have the credibility to complain about a couple of tariffs. Tariffs are routinely abused by the same nations complaining about the U.S. tariffs. China intentionally dumps materials like steel into the United States to undermine our industries. Tariffs prevent these devious actions from succeeding.
The counter-argument goes, “So what? Let them hurt their own people with increased prices.” The problem with this logic is that a state like China can play the long game. Theoretically, they could cripple an entire American industry by flooding the market with a surplus of a product, decreasing prices and making these industries unprofitable.
Now, that is a pretty extreme result and takes time, but that does not mean we should not take the threat seriously. Targeted tariffs may be necessary in these circumstances, especially since China routinely ignores the rulings of international courts. Furthermore, threatening tariffs can be utilized as a negotiating tactic to incentivize other states to lower tariffs on American products.
If the U.S. is really serious about this issue, perhaps they should consider scrapping the current tariff and instead place a blanket tariff on all Chinese imports until they back down. After all, China needs us more than we need them. In the end, it is a fine line to walk, and such a move would be extraordinarily risky. A few tariffs could lead to retaliatory tariffs which could quickly spiral into a trade war, devastating American consumers.

Source:WesternFreePress