No, Trump’s Tariffs Are Not A Master Negotiation Tactic

No, Trump’s Tariffs Are Not A Master Negotiation Tactic

Some Trump diehards think the president’s tariffs are a strategic masterstroke in negotiation, but the harm they will do belies that idea.
Jimmy Sengenberger
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“It’s a negotiating tactic!” my Facebook friend proclaimed after the Trump steel and aluminum tariffs were announced. “This is what businessmen do!” The “wimps” in the GOP, he said, cannot “understand a guy who plays hardball.”

It’s one thing to play hardball, and President Trump is certainly good at that. It’s another thing when the collateral damage impacts real Americans, and “negotiation tactics” become actual policy, rooted in inconsistent justifications for that policy. Trump is excellent on a variety of economic issues, especially taxes and regulations, but make no mistake: Tariffs hurt consumers and workers far more than they help.

The consumer impact is obvious. Higher input costs for steel and aluminum will mean higher prices for those products that use the raw metals. Republicans chided House Minority Leader Nancy Pelosi for her “crumbs” comment regarding the benefits of the new tax law. Yet some, including Commerce Secretary Wilbur Ross, are now making a similar argument about tariffs.

For workers, job losses likely will result from the steel and aluminum tariffs. President George W. Bush inflicted a tariff on steel imports in 2002 to “protect” American jobs. That year, there were 187,000 people employed by the steel industry in America. Yet, as the Consuming Industries Trade Action Coalition Foundation found, 197,000 net jobs were lost in 2002 in industries that use steel: more than the total number of steel workers. The lost jobs equated to roughly $4 billion in lost wages from February to November of 2002.

Economists Joseph Francois and Laura Baughman predict a similar result from the new tariffs, with a forecast of a net loss of almost 146,000 American jobs.

Furthermore, the American steel industry is not in “bad shape,” as the president posits. As the Brookings Institution points out, “the American iron and steel industry has had a very modest export growth as measured by shares of total U.S. exports.” They demonstrate that productivity has gone up, not down, as imports have incentivized more efficient manufacturing processes and stronger business practices.

The bar for global tariffs must be extremely high. And if it’s going to be a serious negotiation tactic in the world of international trade, the American approach must be consistent, transparent and oriented toward specific goals. Unfortunately, the Trump tariff tactic seems to be none of these.

The Obama administration established targeted tariffs of up to 200 percent on certain steel products, and Trump’s repeated cries against Chinese practices echo this concern. China is indeed engaging in “dumping,” where they ship out products to other countries at cheaper prices than the price charged in their domestic market. This is egregious, and there is some justification for targeted tariffs against China. These concerns arguably were the first basis for Trump’s examination of tariffs.

Then the issue turned to national security concerns. Secretary Ross launched a Section 232 investigation into the national security implications of steel and aluminum imports. This concern appears to drive tweets from the president, such as this one from March 2: “We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!”

The theory is, by a majority of our steel and aluminum coming from other countries, we will be neither self-sufficient nor capable of providing for our own national defense. However, only about 3 percent of U.S. production of steel- and aluminum-related goods are needed for U.S. military requirements.

In a recent memo, Defense Secretary Jim Mattis noted that, because of this fact, the Department of Defense doesn’t believe the threat of imports is serious enough such that the U.S. will not be able to access enough steel and aluminum required for national defense purposes. Consequently, Mattis suggested “targeted tariffs” on specific countries — particularly China — as the right policy, rather than the broad stroke that Trump has now taken up.

Both Mattis’s observations and the facts about the industries bely Trump’s contentions about steel as a national security matter. Yet the administration seems to have pivoted from national security to something not covered under Section 232: the concern over “trade imbalances.”

“The United States has an $800 Billion Dollar Yearly Trade Deficit because of our ‘very stupid’ trade deals and policies,” Trump tweeted March 3. “Our jobs and wealth are being given to other countries that have taken advantage of us for years.”

China and national security seem to now be second fiddle to dealing with the perceived harm of an $800 billion trade deficit. Hence, the president has tweeted that “trade wars are good, and easy to win.” He seems to be embracing the idea of a trade war to address not national security issues, but the broader scope of trade partners.

We are already seeing other countries and the European Union threaten to respond with retaliatory tariffs. Not to mention, the trade deficit matters little, as it is balanced out through capital flows into the U.S. from foreign countries.

Then, Trump’s tweet on March 5 shifted gears in another direction: “We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.”

Here Trump pivots to the North American Free Trade Agreement as the justification for the tariffs — meaning it’s apparently not about China, and not truly about national security, but about scoring a “fairer” NAFTA deal. The inconsistencies are abundantly clear. And Trump is using the threat and coming reality of tariffs against more than a dozen different trading partners — including Canada, Mexico and others — in negotiating something largely irrelevant to steel and aluminum that impacts far more than just NAFTA partners. Furthermore, his discussion of drugs “pouring into the U.S.” from Mexico is a non-sequitur to NAFTA negotiations.

In addition, the president’s goals for limiting the tariffs seem to be broad. He says they will be “new & fair.” What does that entail? Does it include changing the dispute resolution system? Changing de minimis rules? Addressing intellectual property protections? What does the phrase actually mean?

Our trading partners cannot help us lead to a conclusion in negotiations (perhaps NAFTA, perhaps something else) without consistency in what America is pursuing, transparency in our actions and specific goals laid out that we are trying to achieve. Unfortunately, the Trump strategy thus far seems to be abandoning these tenets, instead leading to inconsistency and confusion.

Jimmy Sengenberger is president and CEO of the Millennial Policy Center, a public policy think tank based in Denver, Colorado, and the host of "Business for Breakfast" on KDMT Denver Radio.

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