The Wall Street Journal’s opinion page created a buzz yesterday with its editorial “A Navarro Recession?” It charged that, if the nation soon suffers an economic downturn, it would be the product of the trade wars President Trump has initiated on the advice of Peter Navarro, director of Trump’s Office of Trade and Manufacturing Policy.
Multiple reports out of the White House last week say President Trump overruled all of his economic advisers other than Peter Navarro when he decided to impose new tariffs on China. Global and American economic conditions have been heading south ever since, so perhaps we should call this the Trump‐Navarro trade‐policy slowdown.
Later yesterday, Navarro fired back at the WSJ, saying on Fox Business Network, “It doesn’t sound a lot different from the People’s Daily in terms of the news that it puts out,” referring to the Chinese Communist Party newspaper. Clearly, the editorial has gotten under his skin.
It’s been a long, strange trip for Navarro. At one time, he was a fairly orthodox, market‐friendly economist, even writing on the virtues of free trade in his 1984 book The Policy Game (as well as contributing a couple of items to my publication, Regulation). Yet, somewhere in the 2000s, he developed Sinophobia and authored a series of books on the ostensible threat China poses to the U.S. and world economies. One of those books, 2006’s The Coming China Wars, brought him to Trump’s attention and ultimately led to his White House post.
If you’re interested in learning about the strategist of Trump’s trade wars and the problems with his current ideas, check out Pierre Lemieux’s excellent article “Peter Navarro’s Conversion,” the cover story for Regulation’s Fall 2018 issue. With Trump imposing tariffs left‐and‐right, Pierre’s final graf is as timely today as it was a year ago:
The maintenance of economic freedom at home — which includes the freedom to import what one wants if one finds the terms agreeable — is the only individualist, coherent, and realistic policy. The young Peter Navarro seemed to understand that. Sadly, today’s Navarro does not.
Do you want to know what’s not currency manipulation? The People’s Bank of China observing the value of the yuan plummet as markets respond to Trump’s tariff frenzy is not currency manipulation.
Do you want to know what is currency manipulation? The president of the United States imploring the Federal Reserve chairman to lower interest rates for the distinct purpose of reducing the value of the dollar is currency manipulation.
For elaboration, please read my article on Forbes: Trump and Bipartisan Majority in Congress Complicit in Chinese Currency Manipulation Canard.
Senator Warren is said to have a “plan” for every policy area. But on trade policy, her plan and her general rhetoric on the issue are not very impressive. It would be better if she had no plan at all and just governed by tweet! (Ok, not really).
She recently announced her trade plan here. I gave it a quick rundown and concluded: “my sense is that this proposal means there would probably not be any trade deals in a Warren administration, while there would be various proposals to add new protectionism to U.S. domestic trade policy.” The Fletcher School’s Dan Drezner took some more time and offered this assessment: “Elizabeth Warren has put forward a terrible, horrible, no good, very bad trade program. Other Democratic candidates would be wise to avoid this garbage fire and come up with something more sensible.” And CFR’s Ted Alden said this: “When voters in places like Michigan, Ohio, and Pennsylvania look at the candidates’ trade policies this fall, the question will be what’s in it for them — for their economic futures and the opportunities for their children? Warren’s plan ticks a lot of Democratic Party boxes, but offers no compelling answer to that question.”
At last night’s Democratic primary debate, there was a chance to talk about this plan, and the candidates got into the details a little bit. Two things struck me about Warren’s remarks at the debate: They were misleading, and they completely ignored some obvious criticisms.
For example, she said:
Anyone who thinks that these trade deals are mostly about tariffs just doesn’t understand what’s going on. Look at the new NAFTA 2.0. What’s the central feature? It’s to help pharmaceutical companies get longer periods of exclusivity so they can charge Canadians, Americans, and Mexicans more money and make more profits.
Whatever you think of a 12 year exclusivity period for biologic drugs (I’m skeptical of it), it’s definitely not the case that it is the “central feature” of the new U.S.-Mexico-Canada Agreement. There are so many features to trade agreements these days that it’s hard to say what the “central” one is, but lower tariffs is still a main one, rules on e‑commerce are important, and there are a wide range of other provisions as well. It’s true that there is a controversial provision on biologic exclusivity, but it’s hardly the “central feature.”
Along the same lines, she says: “We’re going to negotiate our deals with unions at the table.” But trade agreements have already been expanded to cover labor rights. Given the extensive labor provisions in modern trade agreements, including the USMCA, it is clear that unions already have a big role “at the table” to help draft these agreements.
And she didn’t have a response to John Delaney’s point that her approach is “so extreme that it will isolate the American economy from the world.” It’s really not clear that any trade deals could be negotiated under her approach. And what about China, the biggest trade issue of all? What’s her plan there? She didn’t have much to say on this.
Of course, politicians have been known to change their positions, so it may be that as president she would conduct trade policy differently than she is currently suggesting. Right now she is talking to a particular domestic audience. As president, she would have to meet some foreign counterparts, and her view of the world might change a bit. For now, though, she and many of the other Democratic presidental candidates are, as my colleague Dan Ikenson put it yesterday, “failing us on trade.”
One of the few hopeful, “glass‐half‐full” thoughts I had after Donald Trump won the election in 2016 was that the new president would prove to be the best salesman of free trade since Adam Smith. No, I wasn’t so deluded to think he’d articulate the case for free trade and commit himself to removing all protectionist barriers. On the contrary, I assumed Trump’s reckless deployment of tariffs and other trade restrictions would backfire so spectacularly and expose the folly of protectionism so convincingly that the economically discredited philosophy would become politically radioactive, once and for all.
Well, the absence of any coherent, fresh ideas from the Democratic presidential aspirants that would differentiate their trade policies from President Trump’s suggests that maybe things haven’t played out as I had expected they would. Not yet, anyway.
The cost of Trump’s trade wars (the effects of tariffs on nearly $300 billion of imports and retaliation against nearly $200 billion of exports) has started to register on the Geiger counter, but we’re nowhere near Chernobyl levels yet. The economic pain has been concentrated in a few sectors and regions, and dulled by subsidies, fiscal stimulus, and (as of tomorrow, presumably) monetary stimulus. Of course, as this sugar high wears off and the economy slows, conditions are likely to worsen.
Will the Democrats be prepared to capitalize when this happens? Will any of the party’s presidential aspirants call out Trump’s tariffs? Will any repudiate protectionism? Can any lead the party back to the center on trade? According to all of the major polls, that’s exactly where most Democratic voters reside. It’s where most Republican voters reside, too.
The problem for Democrats is that distancing themselves from Trump’s protectionism means distancing themselves from the prevailing Democratic Party orthodoxy. For the past quarter century, Democrats have been skeptical of — when not outright hostile to — trade and globalization.
In many regards, Trump’s right‐wing, protectionist, nationalist trade policies are barely distinguishable from the ideas espoused by the Democratic Party’s anticorporate, protectionist left‐wing, who still hold sway over trade policy. Both favor interventions to achieve particular (often identical) outcomes, such as compelling Americans to “Buy American,” limiting imports, penalizing developing countries that don’t adopt rich country labor and environmental standards, taxing outsourcing, impeding labor market adjustment, and halting the alleged encroachment of the dark forces of globalization. To the right, those dark forces are the faceless foreign bureaucrats committed to usurping U.S. sovereignty. The left’s bugaboo are the multinational corporations, hellbent on weakening the rule of law and undermining democracy.
To those seeking the Democratic nomination for president, challenging the party’s protectionist plank may sound risky. After all, the party’s trade policy positions long have been bankrolled by organized labor, which — despite its absurd claims to the contrary — opposes trade liberalization, full stop, regardless of the fact that protectionism hurts U.S. workers (placing my bet here that the AFL-CIO does not endorse the USMCA, even after all of its conditions are met).
Voters on the far left, who will play an outsized role in selecting the nominee, tend to support the party’s protectionist platform because they’ve been misled to believe that trade only benefits big corporations and the rich. Senators Warren and Sanders have been instrumental in perpetuating that divisive fallacy. The facts are that the costs from the diminution of trade opportunities are borne primarily by smaller companies and households with lower incomes.
Protectionism is regressive. Free trade is progressive.
Although the subject was barely broached in the first two Democratic debates, the party’s positions on trade are going to matter in the 2020 election. Those positions will be shaped by debate among the candidates, the direction of the economy, and commentary in the media and on social media from now until the convention next summer. But Democrats should realize that voters from the center‐left to the center‐right want an alternative to Trump’s trade policies. They want to see the damage repaired.
Trump’s decision to withdraw the United States from the Trans‐Pacific Partnership — which lives on as the Comprehensive Progressive Trans‐Pacific Partnership for the benefit of producers and consumers in 11 countries not called the United States — will make it that much more difficult to reverse the damage and rebuild commercial relationships when enlightened U.S. leadership recommits to that course. What they will find is that while the Trump administration (and, it now seems reasonable to conclude, the Republican Party more broadly) was indulging its protectionist nationalist grievances and playing hard to get (something Elizabeth Warren’s trade plan would double‐down on by making prospective partners jump through all sorts of hoops), the EU, Canada, Mexico, China, Japan, Korea, and many countries in Latin America and Africa were pursuing and completing trade agreements, which have put and will continue to keep U.S. exporters at a huge disadvantage in many important markets across the globe.
Moreover, the World Trade Organization, which — along with its predecessor, the General Agreement on Tariffs and Trade — has provided some semblance of institutional continuity and the rule of law in international trade for over 70 years, is under severe duress and could collapse, in large measure because of U.S. actions and inactions. The Trump administration’s defiance of the trade rules and preference for vigilantism is pushing the global economy toward breaking up into competing spheres of influence. That outcome would reduce the scope for economies of scale, impede the process of specialization, and tempt more and more governments into imposing discriminatory tariffs on products from countries in the “other” sphere or spheres.
The administration’s aggressive and unpredictable behavior has worked to undermine U.S. credibility abroad, which means not only that American commercial interests will suffer, but that U.S. geopolitical objectives going forward will become more difficult and more expensive to achieve. Team Trump has created some real problems that the next administration must fix. What solutions do the Democratic candidates offer?
The Republican Party and its congressional leadership have fallen in line behind Trump’s America‐First protectionist nationalism, abandoning the center and center right, leaving the business community, moderate Republicans, and “Never Trumpers” desperate for alternatives. These developments gives Democrats an opening to distance themselves from protectionism and set their sights on reclaiming the vast middle ground on trade — from the center‐left to the center right — that it ceded to the GOP in the mid‐1990s. It can do that by offering a pro‐trade alternative that voters see as reasonable and realistic, and focuses on repairing bilateral relationships, securing agreements that put U.S. entities back on equal footing, contributing constructively to repairing the WTO, and insisting on enforcement through the rules‐based system of trade.
If any candidate is looking to history for inspiration, it was in 1934 that a Democratic Congress and a Democratic president rescued the ship of U.S. trade policy, after it had been stranded on rocky shores by Republican tariffs, by passing the Reciprocal Trade Agreements Act.
The RTAA offered a way to begin digging the country (and the world) out of the protectionist hole that was dug by the Tariff Act of 1930 (aka, Smoot‐Hawley) and its repercussions. The RTAA made it easier to negotiate, conclude, and enact bilateral trade agreements. The successes set the table for 23 countries to sign the original GATT in 1947, which was broadened and deepened incrementally over eight rounds of multilateral negotiations, culminating in the establishment of the WTO in 1995. This was the work of a bipartisan consensus in Washington that was initiated and nourished by Democrats, who understood the value of trade to economic growth and its centrality to fostering good relations among nations. Renewing that commitment in 2019 would be good for the party, the country, and the world.
Democrats — especially Sens. Warren and Sanders and others who call themselves “progressive” — should know that in the very same breath that they express opposition to trade agreements and preferences for tariffs, they endorse regressive taxation of life’s basic necessities: food, clothing, and shelter. Tariffs are not only taxes, but regressive taxes. There is an inverse relationship between income and percentage of income spent on goods. People with lower incomes spend higher percentages of their incomes on goods and lower percentages on services than do people with higher incomes. Imports account for the majority of the goods Americans consume. Furthermore, relatively high U.S. tariffs on products like clothing and footwear punish producers in poor countries disproportionately.
Maybe some sensible ideas will come to the fore during the debates over the next two nights, but as of now it seems that the Democratic candidates will remain hopelessly beholden to organized labor, environmental extremists, and anti‐business, anti‐capitalism, anti‐globalization groups — even though the preponderance of Democratic voters favor trade, trade agreements, globalization, and U.S. global economic leadership. Likewise, there are millions of “Never Trumpers,” and centrist Republicans who became politically homeless when Trump commandeered the GOP and drove it to the nationalist, protectionist right.
The Democratic Party is long overdue for a serious, substantive debate over the objectives and tools of trade policy. Making a play for the center on trade would be the outcome that best serves the party and the country. Perhaps we’ll see evidence that debate has begun tonight.
Huawei has been in the U.S. government’s crosshairs for over a decade. In 2008, U.S. policymakers convinced the Committee on Foreign Investment in the United States to block the Chinese technology firm’s acquisition of U.S. software company 3‑Com on the grounds that the deal would threaten national security. For many years, I have suspected that the U.S. campaign against Huawei was motivated less by concern over specific security threats than by the desire to respond to China’s aggressive, discriminatory industrial policies in the technology space. If Beijing was going to subsidize indigenous innovation, favor companies that registered intellectual property in China, and encourage Chinese companies to “borrow” U.S. technology in a push to challenge American firms at the technological fore, then the U.S. response would be to inhibit the commercial success of the beneficiaries of those industrial policies. Huawei‘s emergence as a global competitor made it an obvious target.
Although it is certainly plausible that Huawei presents a security threat to the United States, that conclusion has never been demonstrated convincingly in any public forum by anyone with access to the information upon which such a conclusion should be based. There have been closed door hearings in which classified information was discussed and generated, which — if declassified and shared with the public — might convincingly corroborate these threat claims and maybe even justify the administration’s decision to put Huawei on the U.S. Commerce Department, Bureau of Industry and Security’s “Entity List,” a move that could starve Huawei of needed inputs from U.S. companies. But it shouldn’t come as a surprise that policymakers who sit on intelligence committees or who serve in security‐oriented federal agencies are probably predisposed to see security threats where others don’t or to discern nefarious intentions where the evidence is benign or even to interpret the absence of evidence as proof of the perpetrators’ craftiness.
Then again, when the standard of proof is the precautionary principle, the evidentiary thresholds aren’t especially rigorous. A threat possibility, however remote, tends to suffice.
Protecting national security is a legitimate function of government. Fulfilling that responsibility sometimes requires that international trade and investment be restricted. Since determinations of threats to national security often are based on classified information, the public has to trust that policymakers have reached the right conclusions and that the prescribed remedies are necessary and appropriate.
It is difficult to trust the Trump administration in this regard, as it has already demonstrated itself an unreliable arbiter of national security threats. President Trump has made a frivolity of the national security rationale for restricting trade. Last year, Trump invoked threats to national security to justify his tariffs on steel and aluminum imports. This year he concluded that U.S. security is threatened by imports of automobiles and auto parts. In those cases, the data and analyses “supporting” the national security threat conclusion were not classified, but publicly available. And you can count on your fingers and toes the number of people convinced that steel, aluminum, and auto imports present such threats.
Based on information that the U.S. public hasn’t seen, the Trump administration has deemed Huawei a national security threat. That may well be the right conclusion, but the U.K., German, and other governments that the administration has been pressuring to purge their networks of Huawei gear, seem unconvinced, and have resisted.
The Trump administration’s latest move to blacklist Huawei escalates already rapidly escalating tensions in the U.S.-China relationship. Putting the company (and 68 affiliates) on the Entity List means that U.S. firms can no longer do business with Huawei without first obtaining a special license, which can only be done after overcoming “a presumption of denial.” Earlier today, Google, Intel, Qualcomm, and other prominent suppliers announced plans to discontinue their current commercial relationships with Huawei. It doesn’t take a creative imagination to foresee worsening troubles ahead for U.S. businesses operating in China and, well, a deepening process of economic disengagement.
The bottom line is that when U.S. economic policy toward China could be successfully sequestered from the geopolitics, the relationship could be managed. Now our economic problems are viewed and magnified through a geopolitical prism and, for many, the calculations suggest that disengagement and decoupling is the optimum. But that, too, will be enormously costly.
To reiterate a conclusion from a recent op‐ed:
By banning Huawei gear and putting pressure on third countries to do the same, the United States is effectively saying that a huge swath of 21st century trade — an estimated $12.3 trillion in sales activity across multiple industries involved in developing 5G infrastructure and producing 5G enabled products by 2035, according to the Congressional Research Service — will not be subject to the disciplines of the global trading system. If that doesn’t consign the WTO to insignificance, the ensuing race to carve up the world into spheres of influence based on competing 5G standards will.
In what will look like a replay of the Cold War, Beijing and Washington will compete for the loyalties of the rest of the world by offering carrots and threatening sticks to countries to adopt their respective 5G standards. Dividing the world into these technology blocs will deprive the technology ecosystem of global economies of scale and open the door to bloc‐based tariffs and other forms of protectionism, making the world a poorer place. Creation of the open global trading system induced a steady climb in global exports from 4% of GDP in 1947 to 26% of GDP in 2015. Erecting tariffs and non‐tariff barriers through that system would undoubtedly cause a decline in global trade and output.
Instead of entering what many anticipated would be the home stretch of negotiations to end the nearly yearlong trade war, U.S. tariffs on about $200 billion of imports from China are set to increase from 10 percent to 25 percent tomorrow morning. There is plenty of speculation as to what happened, who’s to blame, whether President Trump is engaging in negotiating tactics described in “The Art of the Deal,” and which economy is better situated to withstand a wider, longer trade war (as if a 10 percent economic contraction means victory if the other economy shrinks by 15 percent).
The most prominent explanation for the abrupt reversal is that U.S. negotiators learned that their Chinese interlocutors were backing away from previous commitments to resolve the forced technology transfer problem, which is one of the most important U.S. objectives in these talks. After mulling that development last weekend, Trump opted for escalation. He also promised that the balance of Chinese goods (another $250 billion of imports not yet tariffed) soon will be hit with rates of 25 percent, as well. In response, Beijing announced it will impose yet‐to‐be‐specified countermeasures.
Interestingly, this week’s developments haven’t completely torpedoed the negotiations. A somewhat smaller (than originally planned) delegation of Chinese officials is in Washington for negotiations slated to begin at 5pm, which gives them exactly 7 hours to sort everything out before Trump’s higher tariffs take effect at the stroke of midnight. Don’t expect a comprehensive deal or even the contours of one to materialize, but with Chinese Vice Premier Liu He making the trip to Washington despite this latest upheaval, there is at least some hope that the actual tariff escalation will be deferred.
It turns out that the fine print in the Federal Register notice announcing the new rates states that products leaving China after 12:01, Friday, May 10, will be subject to the higher tariffs. It takes about two weeks for a cargo ship departing Shanghai to arrive in Long Beach, so negotiators really have seven hours, plus about two weeks, to reach a deal before Customs has to tax U.S. importers at the new, higher tariff rate. Of course, time is much shorter (seven hours plus about twelve hours!) for importers of high‐value, fragile, and perishable products, which are typically transported by air.
As of this moment, the United States has punitive tariffs in place on approximately $250 billion of imports from China. Since last July, tariffs of 25 percent have been levied on imports that were valued collectively at about $50 billion in 2017. Nearly all of those goods are intermediate inputs or capital equipment — the purchases of U.S. producers. Trump advisor Peter Navarro was pleased to note at the time that, in selecting the products to target, he and colleagues used a special economic model to help them avoid burdening consumers by focusing on business purchases, as if businesses don’t pass their higher costs onto consumers in the form of higher prices or onto to their shareholders and workers in the form of lower profits. Thanks, Pete!
After Beijing retaliated, the Trump administration imposed 10 percent tariffs on an additional $200 billion of Chinese goods. This time, the majority of targeted products were consumer goods. It is this tranche of products for which tariffs are slated to increase to 25 percent at midnight. Makes one pine for the days when Navarro worried about consumers.
If matters aren’t resolved quickly, the likelihood is very high that all U.S. goods imports from China will be hit with tariffs of 25 percent. Let me try to put that in some perspective.
In 2017 (before the punitive tariffs were in place), U.S. imports from China totaled $504 billion and duties paid to U.S. Customs amounted to $13.5 billion, which is an average applied tariff rate of 2.68 percent. Last year, when tariffs of 25 percent on $50 billion of Chinese goods were imposed in June and July, and additional tariffs of 10 percent on $200 billion of Chinese goods were imposed in late September, the value of imports from China totaled $543 billion and the duties collected came to $23 billion — an average applied tariff rate of 4.23 percent. Nearly $10 billion of costs associated with the higher tariffs were imposed on consumers, businesses, shareholders, and employees.
It turns out that for many products Americans purchase from China, demand is fairly price inelastic. In other words, a one percent increase in price generates less than a one percent decline in quantity demanded. Total revenue rises. At least that is the case for broad swaths of products within the range of price increases attributable to the tariffs. Afterall, despite that tariffs, import value rose from $504 to $543 billion in 2018. Maybe there aren’t many substitute sources or the costs of finding substitutes and switching is too high relative to the tariffs.
A 25 percent across‐the‐board tariff could generate different effects. Demand may be more price elastic for more products at that price range. In other words, we will likely see a decline in import value from China if 25 percent tariffs are imposed. That means that the added costs directly attributable to the tariffs would not be 25 percent of $543 billion (the 2018 value), for example, because the value of imports will be lower. How much lower depends on these elasticities and other factors. However, 25 percent of $543 billion is not an unreasonable, upper end estimate of the costs to U.S. consumers and businesses that would be attributable to a 25 percent across the board tariff. That’s $135 billion. That’s a cost of about $400 for every person in the United States. That’s a lot.
For those of us who support the North American Free Trade Agreement (NAFTA), the renegotiation process had us at the edge of our seats each day. Would the three parties be able to reach agreement? If not, would the Trump administration try to withdraw from NAFTA? And if so, would Congress act to stop the withdrawal? When the newly minted U.S.-Mexico-Canada Agreement (USMCA) was signed last November, there was a brief reprieve from the stressful, high‐stakes negotiations.
That break is now over. The U.S. International Trade Commission (USITC) released its independent assessment of the economic impact of the USMCA, a procedural step that clears the way for Congress to take up debate on ratification of the deal. That debate looks like it will be acrimonious, as leaders of both parties have been pushing the Trump administration with specific demands in exchange for supporting USMCA.
Democrats have already aired a number of concerns over the new agreement, particularly with regard to labor enforcement, but their specific demands are a bit vague, and vary a bit depending on which Democrat you talk to.
But now the Republicans are weighing in, and the biggest battle over the ratification of USMCA may come from the president’s own party. And in terms of trade liberalization, it is a particularly important one, because it involves removing tariffs (the USMCA itself does not have much impact on tariffs, as NAFTA has removed virtually all of them on trade between the three parties). Writing in the Wall Street Journal, Senator Chuck Grassley (R‑IA) called on President Trump to lift the Section 232 steel and aluminum tariffs on Canada and Mexico, declaring, “If these tariffs aren’t lifted, USMCA is dead. There is no appetite in Congress to debate USMCA with these tariffs in place.” In essence, Grassley is making his support for USMCA conditional on the removal of these tariffs. Grassley’s threat should be taken seriously, not least because he serves as Chairman of the Senate Finance Committee, which gives him the power to indefinitely delay putting USMCA up for a vote in the Senate.
Beyond the politics, his proposal just makes a lot of sense. A report from the Peterson Institute describes the impact of steel tariffs in this way:
Calculations show that Trump’s tariffs raise the price of steel products by nearly 9 percent. Higher steel prices will raise the pre‐tax earnings of steel firms by $2.4 billion in 2018. But they will also push up costs for steel users by $5.6 billion. Yes, these actions create 8,700 jobs in the US steel industry. Yet for each new job, steel firms will earn $270,000 of additional pre‐tax profits. And steel users will pay an extra $650,000 for each job created.
Essentially, while a few steel producers have benefitted from the tariffs, the tab is being picked up by everybody else who has to buy steel. A part of that cost is ultimately paid by the consumer. As a result, the overall impact of the tariffs on the U.S. economy is negative.
Furthermore, it makes little sense that these tariffs are being maintained on our closest trading partners, especially after they negotiated in good faith to address many U.S. concerns with NAFTA. During the NAFTA negotiations, the issue of steel and aluminum tariffs lingered like a dark cloud overhead. Both the Canadian and Mexican delegations were under the impression that the 232 tariffs would be lifted once the agreement was signed. That, however, did not end up being the case. These tariffs are still in place, and as a result, Canada and Mexico have placed retaliatory tariffs on the United States. These retaliatory tariffs have resulted in a decrease in U.S. exports to Canada by 25% and to Mexico by 10% since they have been in effect. Lifting the 232 tariffs on Canada and Mexico will minimize any further harm on both sides of our borders.
One important point to keep in mind, however, is that tariffs could be replaced by quotas, as was the case for the Section 232 tariffs on South Korea and a couple of other countries. Quotas can actually be worse than tariffs in terms of their impact. Thus, Senator Grassley and his colleagues should demand that the removal of the Section 232 import restrictions be complete and total: No tariffs, no quotas, no nothin’.
The ball is now in President Trump’s court. In the past, he has called himself a “Tariff Man,” but the negative impact of the tariffs imposed so far should illuminate the benefits of open markets. By firing this shot in the USMCA ratification battle, Grassley has made the choice before Trump abundantly clear: support the passage of the deal by delivering on his promise of being a great dealmaker, or stay the Tariff Man. The path he chooses will be an important signal for ongoing and future trade negotiations the administration undertakes. Most importantly, it will provide clarity as to whether the administration simply sees tariffs as a tool to negotiate better deals, or whether tariffs are an end in themselves. We await the response.