President Trump has combined tax reform and deregulation to boost the economy and create jobs. Yet he is canceling out this economic enhancement with protectionist policies.
His biggest policy mistake to date is his decision to impose tariffs of 25% on steel and 10% on aluminum. The announcement sent markets reeling globally, resulted in almost immediate announcements of retaliatory tariffs and endangered the future of the already shaky negotiations on changes to the North American Free Trade Agreement (NAFTA).
Foreign trade agreements may need some adjustment and it’s to his credit that President Trump has sought to bargain hard on behalf of the United States. But the end result needs to be a fair and balanced agreement and his approach is more likely to produce isolationism.
His previous decision to pull out of the Trans-Pacific Partnership (TTP). Which was also opposed by Hillary Clinton, left the U.S. as a non-participant in a trade agreement with Australia, New Zealand, Canada, Singapore, Vietnam, Malaysia, Japan, Mexico, Peru, Brunei and Chile. While China was also not a party to the TPP, which was signed in February, some believe China has an opportunity to fill in the void left by U.S. non-participation.
He also approved tariffs last month on imported solar panels and washing machines.
In one of several requisite Trump tweets explaining the tariffs, President Trump wrote: “When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!”
The Wall Street Journal, though, concluded that, “This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms.”
While the tariffs will benefit a handful of American steel companies, The Journal noted, the benefits will be short-term – and a far greater number of companies will be harmed by the tariffs.
“Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000,” according to The Journal. “Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.”
Instead of using American steel, many companies are likely to respond to the tariffs by importing finished products made abroad from cheaper steel or aluminum.
Maybe President Trump will respond by adding tariffs to finished goods as well.