Trump's Economic Ignorance on Tariffs

Another week, another bumbling trade declaration from the president.

Another week, another bumbling trade declaration from President Donald Trump. After a very confrontational G-7 meeting, he threatened to cut all member countries—Canada, France, Germany, Italy, Japan, and the United Kingdom—off from the U.S. market if they don't reduce their tariffs on American exports. He told the press, "It's going to stop, or we'll stop trading with them."

As a reminder, this whole drama started when President Trump imposed stiff steel and aluminum tariffs on everyone, including our closest trading partners, friends, and security allies. Adding insult to injury, he argued that imports from these friendly countries are a security threat to the United States, even though the Department of Defense said they are not.

After a short period during which he seemed willing to grant these allies an exemption from the import taxes, Trump suddenly announced that he would not only go ahead with the imposition of the tariffs but double down by adding tariffs on imported automobiles—also in the name of national security.

According to Trump, these measures are retaliation for the tariffs, quotas, and other trade barriers erected by these countries. But now "the gig is up," he declared. To be sure, most countries do impose trade barriers on imported U.S. goods and services. Yet Uncle Sam imposes tariffs on imported goods from these countries, too, even though our protectionist measures are often smaller. Here's what the president doesn't get: Protectionist policies by other governments are no justification for our government to inflict identical harm on the American people.

In many cases, who do you think is going to shoulder the cost of import taxes on European specialty steel coming to the United States? It'll be the steel-consuming companies in the United States. Here's how this could unfold.

One possibility is that the American company will continue to buy the European steel at an inflated price but, to lessen the blow of the tariff, shift the extra cost onto consumers and workers—including some who will lose their jobs. Alternatively, to regain access to cheaper materials, the company may be forced to stop manufacturing in the United States altogether. That move would obviously throw many U.S. workers out of jobs. Yet another possibility is that the company will simply declare bankruptcy because neither of those options is feasible. If you think this couldn't happen, think again. U.S. companies' responses to steel tariffs were well-documented the most recent time the United States was foolish enough to impose them, in 2002.

The same thing is bound to happen today. If you need more evidence, read the 19,000 exemption requests filed by U.S. steel- and aluminum-consuming companies begging the administration to stop hurting them with these punitive tariffs.

Take the case of InSinkErator, a Wisconsin-based maker of garbage disposers. Thanks to the import tax, the production cost of the U.S.-made garbage disposers increased dramatically overnight. To survive, the company had to raise its products' prices, making them instantly less competitive globally. It's now losing consumers to Chinese companies that export much cheaper garbage disposers to the United States.

Trump's tactic is even more confusing if you consider that when European governments impose import taxes on American goods sold in Europe, the main victims are European consumers. It means that when President Trump imposes tariffs on a large number of American consumers of foreign goods in the name of forcing European governments to lower their tariffs on a handful of U.S. producers, he is really hurting us for the benefit of foreign consumers. It does raise the question of where President Trump's allegiance lies.

Adding a layer of absurdity, the president now argues that if these governments do not lower their tariffs (i.e., do not stop hurting their consumers), he will deprive Americans of the benefits of trading with them altogether. I'm not sure how he could do that, specifically, but I can promise that a massive number of existing U.S. jobs would be needlessly destroyed if he were to act on that threat.

Finally, Trump's tariff temper tantrums are even more baffling because he was the one who pulled out of the Trans-Pacific Partnership, which would have significantly lowered other countries' trade barriers. TPP would have reduced the infamous dairy penalty that the Canadian government inflicts on Canadians who buy American products. But Trump withdrew from the TPP and is now complaining that co-signatory countries didn't change their protectionist behaviors.

The president's ignorance about economics and trade is well-documented. These recent threats are yet more evidence.