Under the Guise of Security, Trump Sets a Protectionist Fire

Protecting citizens from threats domestic and foreign is the most important function of government.  Among those very threats is a government willing to concoct and aggrandize dangers in order to rationalize abuses of power, which Americans have seen in spades since 9/11. Justifying garden variety protectionism as an imperative of national security is the latest manifestation of this kind of abuse, and it will lead inexorably to a weakening of U.S. security.

The tariffs on imported steel and aluminum that President Trump formalized this afternoon derive, technically, from an investigation conducted by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962.  The statute authorizes the president to respond to perceived national security threats with trade restrictions. While the theoretical argument to equip government with tools to mitigate or eliminate national security threats by way of trade policy may be reasonable, this specific statute does little to ensure the president conducts a rigorous threat analysis or applies remedies that are proportionate to any identified threat.  There are no benchmarks for what constitutes a national security threat and no limits to how the president can respond. 

In delegating this authority to the president, Congress in 1962 (and subsequently) simply assumed the president would act apolitically and in the best interest of the United States.  The consequences of this defiance of the wisdom of the Founders—this failure to imagine the likes of a President Trump—could be grave.

Immediately, the higher costs of steel and aluminum to the U.S. industries that rely on those raw materials will rise. By how much depends on the relative importance of steel and aluminum to manufacturing the respective downstream product.  For example, steel accounts for about 50 percent of the material costs (and about 25% of the total cost) to produce an automobile, but closer to 100 percent of the material costs of producing the pipes and tubes used in oil and gas extraction and transmission infrastructure.

According to Bureau of Economic Analysis, the industries that consume steel as an input to their production account for 5.8 percent of GDP, while steel producers account for just 0.2 percent of GDP.  Steel users contribute $29 dollars for every $1 dollar contributed by steel producers.  The Bureau of Labor Statistics data show that for every worker in steel production there are 46 workers in steel-consuming industries. It doesn’t require complicated analysis to see that the costs to the broader U.S. manufacturing sector and the economy at large will dwarf any small benefits that accrue to the steel lobby.

Meanwhile, the costs to the economy will be compounded, as foreign governments target U.S. exporters for retaliation.  Lost market share abroad will mean smaller revenues for U.S. companies that need to hit profit target in order to invest, expand, and hire.

By signing these tariffs into law, President Trump has substantially lowered the bar for discretionary protectionism, inviting governments around the world to erect trade barriers on behalf of favored industries.  Ongoing efforts to dissuade China from continuing to force U.S. technology companies to share source code and trade secrets as the cost of entering the Chinese market will likely end in failure, as Beijing will be unabashed about defending its Cybersecurity Law and National Security Law as measures necessary to protect national security.  That would be especially incendiary, given that the Trump administration is pursuing resolution of these issues through another statute—Section 301 of the Trade act of 1974—which could also lead the president to impose tariffs on China unilaterally.

As of the moment, members of Congress are mobilizing in an effort to neutralize or somehow contain the damage from Trump’s action. Sen. Jeff Flake (R-AZ) announced an hour or so ago that he “will immediately draft and introduce legislation to nullify these tariffs.”  Whether that or any other efforts by Congress will succeed seem remote.  A veto-proof majority would be needed and according to a Quinnipiac University poll conducted this week, 67 percent of Americans who identify as Republicans agree with the president’s claim that “a trade war would be good for the United States and could be easily won.” By contrast, only 7 percent of Democrats and 19 percent of Independents agreed.

Unfortunately, Congress seems to have awoken too late to the dangerous situation created by the its delegation of authorities without the necessary constraints.  Perhaps we will see renewed interest in legislation Sen. Mike Lee (R-UT) introduced last year that would reestablish more robust congressional oversight of trade policy decision making.  In the meantime, let’s hope for the best.