Daily Times

With apologies to Joss Whedon: Into every generation a truly moronic trade policy is born: one completely counterproductive idea in all of America, a chosen one. This policy alone will wield both the stupidity and the political opportunism required to undercut both the US economy and American foreign policy. It is the Nickelback of trade policy.

To clarify: most “fair trade” policies are imperfect, but most of them at least do a passable job of trying to address the concerns of a decent swath of Americans. Every 20 years or so, however, there is a trade policy that is so galactically stupid that whatever meager benefits it brings to one group is wiped out by the massive but hidden costs to everyone else. I am talking about trade policies that are so bad that mercantilists and free-traders can agree that they are dumb.

In the 1980s, it was the Reagan administration’s voluntary export restraints (VERs) applied to Japanese automobiles. That move offered a temporary benefit to Detroit’s Big Three, but mostly imposed costs. Consumers had to pay higher prices. Furthermore, because the VERs were quota-based, they helped pave the way for Japanese automakers to move into the luxury brands. In other words, VERs generated a temporary benefit to Detroit manufacturers, hurt consumers, and paved the way for Japanese auto firms to eat into Detroit’s bread and butter.

In the early 2000s, it was the idiocy that is this country’s approach to trade in sugar. As I wrote in US Trade Policy: Free Versus Fair:

US import quotas limit the amount of sugar the United States imports. As a result, US sugar prices are 350 percent higher than world market prices. Although this policy has preserved a few thousand sugar-producing jobs, it has also cost an estimated 7,500 and 10,000 jobs, as candy makers relocated production to countries with lower sugar prices.

Well, it is 2017, and we are about to witness yet another really bad trade policy. The Trump administration has been weighing the use of Section 232 to assess whether steel imports negatively affect US national security. Section 232 has not been invoked all that frequently, only 14 times since 1980.

Yesterday, my Post colleagues Damian Paletta and Ana Swanson explained at greater length:

The White House is on the cusp of a major decision about whether to impose new restrictions on steel imports, a choice that has divided President Trump’s administration while sparking global fears about a burgeoning trade war.

The Commerce Department has for months been evaluating whether steel imports pose a threat to national security, and it is expected within days to present Trump with its finding and a recommendation, which Trump could quickly adopt or decide to take a different course.

Based on its decision, the White House could impose new steel tariffs, import quotas or a combination of the two, said senior administration officials speaking on the condition of anonymity to discuss internal divisions.

In the Financial Times, Shawn Donnan points out that even though this trade measure is only supposed to be used for national security reasons, the actual effects do not seem to enhance US national security:

The US is the world’s largest importer of steel. A series of targeted anti-dumping moves has reduced imports from China to a trickle in recent years with Canada, Brazil and South Korea becoming the top three sources of steel imports. Germany is the largest European source. Reading both articles, what is clear is the following:

1. Because far more sectors of the domestic economy use steel rather than produce steel, any protectionist measure harms far more of the US economy than it helps;

2. The United States already has import restrictions on Chinese steel in place, so any action taken will affect treaty allies like Canada, South Korea, and Germany far more severely;

3. An American Iron and Steel Institute report found that a whopping 3 percent of US steel production goes to defense and homeland security;

4. The Pentagon, which I hear is very interested in advancing US national security, is opposed to these measures;

5. If implemented, it is clear that the affected countries will respond with measures to hurt American exports in agriculture and challenge the measures in the World Trade Organization.

Trade policy expert Chad Bown reviewed what might happen in this area back in April. His conclusion:

Steel tariffs would increase costs for US manufacturers and construction companies that rely on imported inputs, making matters worse for US consumers and taxpayers. Even if some US steel jobs end up being saved, it would come at the expense of US jobs in other sectors. And any new import taxes on other consumer or retail goods would likely be regressive – in other words, they would increase prices disproportionately for poorer Americans.

There will likely be less evidence to support these new trade barriers, making them vulnerable to successful WTO actions from other countries. This weakens a 70-year-old US commitment to promote the international rule of law and encourages others to engage in tit-for-tat retaliation.

So, to sum up: as counterproductive as the steel policy was at the turn of the century, this is even worse. In effect, the Trump administration is invoking national security concerns to impose trade measures that would have little effect on US rivals, directly harm US allies, and weaken the US economy. It’s the trifecta of counterproductive policy measures.

Every generation, someone makes American trade policy stupid again. Withdrawing from the Trans-Pacific Partnership was bad. This is way worse.

Published in Daily Times, June 26th, 2017.