I found myself deep in this particular rabbit hole thanks to Magnitude 7 Metals, a Missouri-based primary aluminum smelter whose sudden closure last month pushed Missouri Sen. Josh Hawley to demand that President Joe Biden use the wartime Defense Production Act to magically save the factory. As Reason’s Eric Boehm patiently explained shortly thereafter, the senator’s demand—in somewhat typical fashion—never made much sense because the DPA isn’t some sort of magic “get out of economics free” card that can fix whatever market event politicians don’t like. For Hawley to pretend otherwise is pretty ridiculous stuff.
Dig a little deeper, however, and this is more than just another case of a politician screaming “DEFENSE PRODUCTION ACT” out a Capitol Hill window like Michael Scott declaring bankruptcy. Instead, it’s another teachable lesson regarding the sordid reality of modern U.S. tariff policy, and the high costs, unintended consequences, gratuitous system-gaming, and failed objectives that too often accompanies it.
Imports Aren’t U.S. Factories’ Primary (Get It?) Problem
Let’s start with the failed objectives. As frequent Capitolism readers are surely aware, reviving the U.S. primary aluminum (i.e., aluminum produced directly from mined ore) industry has been a central plank of recent U.S. tariff policy, most notably the “national security” tariffs that the Trump administration imposed in 2018 and that the Biden administration has since maintained. Among those lobbying for these tariffs was Magnitude 7, which said at the time that only tariffs could break America’s “dangerous dependence” on foreign aluminum and thereby revive U.S. primary aluminum production—including the idled Missouri plant that M7 had recently purchased on the cheap via bankruptcy proceedings.
Shortly after those tariffs were imposed, M7’s Swiss (yes, Swiss) owner reopened the Missouri smelter to much nationalist fanfare: Trump’s now-infamous trade adviser Peter Navarro cited it (and an Illinois steel factory that also recently ceased production) among the many tariff “success stories” that he claimed were spreading across the country. Trump himself—at a rally in Missouri with then-candidate Hawley—credited his “beautifully placed tariffs and very tough trade policies” (lol) for M7 opening. The union-friendly, tariff-loving Economic Policy Institute did much the same, albeit with less Trumpian flourishes. They certainly weren’t alone. As Reuters columnist Andy Home recently put it, the M7 factory was the “poster child for the Trump administration’s import tariffs.”
How right they all are.
Mere months after the plant reopened, warning signs emerged. By early 2020 (before the pandemic hit), Reuters reported that the company was “losing money at such a rapid clip that it could close within 60 days.” Its management again blamed imports for “undercutting the company’s position.” This time M7’s alleged problem was that Trump’s original tariffs didn’t cover stuff made mainly from aluminum (aka “downstream” products). Because overseas manufacturers of these goods weren’t saddled with the higher, tariff-driven aluminum costs their American competitors faced, they were able to offer lower prices in the United States, and their U.S. sales (imports) predictably surged.
So, we got more tariffs—lots more tariffs. First, Trump in 2020 extended his security tariffs to cover “derivative” products made mostly from aluminum and then reapplied them to Canadian primary aluminum (only to later relent on the tariffs while jawboning imports down to politically acceptable levels). Next came the “trade remedies” actions, which the Congressional Research Service summarized in a 2022 report: