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Trump Should Kick the Protectionism Can Down the Road

by The Daily Signal | 3.27.18

James M. Roberts / February 15, 2018

James M. Roberts is the research fellow in freedom and growth at The Heritage Foundation’s Center for International Trade and Economics. Roberts’ primary responsibility is to produce the Index of Economic Freedom, an influential annual analysis of the economic climate of countries throughout the world.

President Donald Trump has certainly ramped up the protectionist rhetoric in recent weeks.

Last month in Montreal, Trump’s trade adviser, Ambassador Robert Lighthizer, renewed the president’s threat that the United States could withdraw from NAFTA because in its current form, it is “really not a good agreement for the United States.”

A U.S. pull-out from NAFTA would seriously damage the American economy. For example, as reported, “Texas would be one of the hardest-hit states if the U.S. withdraws from NAFTA, with 970,000 jobs at risk and nearly half of its exports ($112 billion) destined to the NAFTA market, according to the U.S. Chamber of Commerce.”

Fortunately, Lighthizer said yesterday that the U.S. is making “headway” in its efforts to renegotiate NAFTA and downplayed the likelihood of a U.S. withdrawal.

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Earlier this week, however, CNBC reported that Trump is considering a “reciprocal tax” on imports, “including U.S. allies, that levy tariffs on American products, but … did not provide details on how such a tax would be structured or what goods it would apply to.”

Business Insider reported that the “comment sparked concerns among economists, analysts, and industry groups that the U.S. could impose higher tariffs on goods and trigger a trade war” and cited Christine McDaniel, a senior fellow at George Mason University’s free-market think tank Mercatus Center, saying that such a move could directly affect consumers.

“First, it is an import tax,” McDaniel said on Monday. “This tax will make our imports more expensive and reduce competition. For consumers, and as others have noted, a 10 percent tax on imports is akin to a 10 percent additional tax on your Walmart checkout. For businesses—many of whom rely on imported intermediate inputs—it will make their cost of doing business go up. Remember, 40 percent to 50 percent of US imports are intermediate goods. “

Finally, yesterday, Trump told a bipartisan group of senators at the White House that he is considering imposing “substantial tariffs and quotas on steel and aluminum imports to protect U.S. domestic industry from unfair foreign competition and bolster national security.”

In response, as USA Today reported, Sen. Roy Blunt, R-Mo., cautioned the president to avoid a “reciprocal battle on tariffs” and continued, “You know, we make aluminum and we make steel in Missouri, but we buy a lot of aluminum and we buy a lot of steel as well. From bass boats to beer cans, there’s a lot of aluminum out there.”

Certainly the Trump dministration is correct to fight against unfair trade practices, especially by China. As The Heritage Foundation’s 2018 Index of Economic Freedom reports, China has turned away from economic liberalization and is using its subsidized state-owned enterprises to seal nontransparent deals that do not benefit people in countries where it trades and invests.

But the answer to such challenges is not to blow up the world trading system. The United States should insist that China follow international rules just as our allies and trading partners do—partners such as Canada and Mexico.

Let’s hope all the recent saber-rattling on trade by the Trump administration has been just the old trade negotiation tactic of “jawboning” to get a better deal. As Blunt might advise the president: Let’s kick that protectionist aluminum can down the road.

The Daily Signal

Written by The Daily Signal

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