Weekly Column: Trump Tariffs a Political Gamble

Weekly Column: Trump Tariffs a Political Gamble

By Todd Stacy, Alabama Daily News

The American economy is going gangbusters. A new report shows that more than 313,000 new jobs were added to the economy in February. That’s a seriously solid number and the highest monthly jobs gain in almost two years. Also, the unemployment rate remains at a 17-year low of 4.1 percent.

A surging economy is generally good for incumbents. Republicans who hold majorities in Congress are counting on that to be true going into the 2018 midterm elections in which Democrats are more motivated than ever. With the tax cuts just now kicking in and the clear upward economic momentum, the GOP shouldn’t have a problem, right?

Not so fast. The man leading the Republican Party might have put a lot of that economic progress at risk this past week by giving in to his protectionist tendencies.

Despite pleadings against it from conservatives, President Donald Trump on Thursday followed through on his threat to place tariffs on imported steel and aluminum. Beginning later this month, the United States will levy a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. Canada and Mexico are exempt for now, and other countries can apply to have their tariff taken away, the president said.

The action is taken in response to other countries, particularly China, dumping cheap steel and aluminum into the North American market and, thus, making it harder for domestic companies to compete.

There’s no question China has acted aggressively to take over the steel market. The Chinese now produce more than half the world’s steel, while the U.S. produces roughly five percent. However, many question whether tariffs are the best way to deal with China’s aggression. In combative terms, tariffs are sometimes described as shooting at your enemy while stabbing yourself. Sure, you might hurt the enemy, but not without inflicting some serious damage on yourself.

Imposing tariffs means that more in the manufacturing industry will purchase their steel and aluminum from American companies like U.S. Steel and Nucor – both of whom have a significant presence in Alabama. That’s good news for those companies and the workers employed there, at least in the short term.

It’s not good news for those on down the supply chain, where manufactures will be forced to pay more for raw materials and consumers will be forced to pay more for steel and aluminum goods. Just this past week, Hyundai, which is responsible for several thousand auto manufacturing jobs in Central Alabama, said the tariffs could negatively impact its production. They are not saying so explicitly, but you have to imagine the same is true for other Alabama auto manufacturers. And, don’t forget we just inked a deal to build one of the biggest car plants in the world in Huntsville.

Threatening existing jobs while making consumer products more expensive is a surefire way to slow down a surging economy. That’s why many supply-side conservatives have advocated dealing with China by other means less harmful to our own interests.

Back in 2008, President George W. Bush announced the United States’ intent to join and begin to lead the Trans-Pacific Partnership (TPP), a trade agreement among 11 nations surrounding the Pacific Ocean. The idea was to form mutually-beneficial trade relationships with countries from South America to Asia, all while blocking out China from further growing its manufacturing and agricultural influence.

After years of negotiations, the United States left Japan, Australia, Canada, Chile, New Zealand and all the other TPP countries at the altar. Fear-monger politics put the proposal on life support in Congress in 2016, and President Trump delivered the final death knell last year by officially withdrawing our country’s participation.

So it was with some irony that, on the day Trump announced his tariffs, the 11-nation Trans-Pacific Partnership signed a new trade agreement without the United States as the lead partner. Also, it looks like the other countries are now opening the door to China joining the trade group. So, the TPP, which was conceived as a way to gain a competitive advantage over China, could conceivably give China a competitive advantage over us. Nothing like beginning a trade war by shooting ourselves in the foot.

Many conservatives see these developments as major missteps that could threaten our country’s economic progress and, in turn, Republicans’ control of Congress. They are hoping the “Art of the Deal” president is simply using this as a stick to prod the Chinese and other countries into some kind of negotiation, like he seems to have done with North Korea.

We’ll see if that’s true. Either way, it’s a gamble, and the stakes couldn’t be much higher.