“If you don’t have steel, you don’t have a country” declared President Donald Trump at a press availability with the Swedish prime minister. He was explaining his decision to impose a tax on steel and aluminum. Why these products?
Well, the president had just met with steel executives, who tend to press government officials to spare them from the burden of providing quality products at low prices. But it’s probably also traceable to Trump’s sentimentality regarding steel. “When I was growing up, U.S. Steel, that was the ultimate company,” he said wistfully.
Not to engage in the argumentum ad Hitlerum or anything, but you know who else was transfixed by the talismanic image of steel? Joseph Stalin, the man of steel himself. Stalin believed that heavy industry was the key to gaining parity with western nations and so imposed on feudal Russia an enormous industrialization program focused on steel, coal, and oil. “Comrades” were dragooned into working in heavy industry; many literally became slaves. One government project, the White Sea Canal, used hundreds of thousands of slave laborers. During the years of the canal’s construction, between 100,000 and 200,000 laborers (many of whom were women) died or were shot. The massive development of steel and other heavy industry did indeed increase the USSR’s output, but the vast bulk of the production went to military uses while basic consumer goods like clothing, refrigerators and washing machines remained extremely scarce.
Am I comparing our impulsive, petulant president to one of the worst mass murderers in human history? Only in this sense — both men thought they knew a lot about how things should run, and both were convinced that “I alone can fix.”
Stalin, of course, knew less than nothing about economic development, and plunged his country into famine and ruin from which it has not yet completely recovered.
Trump has no such power and no such ambition, but he does seem to share Stalin’s obsession with heavy industry. Our “man of steel” has overlooked quite a bit though. As The Wall Street Journal points out, only about 140,000 American workers are employed in steel production, whereas at least 6.5 million Americans work in industries that use steel such as autos, airplane parts, machine tools and construction, to name just a few. Or, in other words, steel-using industries employ 80 times as many people as steel-producing industries.
So a tiny number of domestic steel makers will get to raise their prices and grab market share at the expense of steel consumers, both businesses and individuals. Beyond the industries that use steel, what happens to other key American products when our trading partners retaliate with tariffs of their own?
Trump justifies this crony capitalist move by reference to section 232 of the Trade Expansion Act of 1962, which grants the president the authority to impose tariffs in cases involving national security. This is transparent bad faith. We get two-thirds of our steel from domestic producers. Among the nations from whom we buy the rest, adversaries like China (2.2 percent) and Russia (8.7 percent) contribute trivial amounts. Our biggest suppliers are Canada, Brazil, South Korea and Mexico. Moreover, Trump has also suggested that the steel tariffs could be dropped in exchange for concessions in NAFTA negotiations, proving that the national security argument is disingenuous.
The United States is largely responsible for the system of free and open trading that has gradually taken hold in the post-World War II world. It has enriched all of us immeasurably. Do nations cheat? Sure. China subsidizes and dumps and steals intellectual property. There are targeted duties that can be imposed upon cheaters. But if the United States is perceived to be cheating itself — by offering the absurd justification of national security to protect one favored industry — a key foundation of the international trading system could be undermined. One can easily imagine other nations imposing tariffs on American agricultural products (which, by the way, we subsidize) on the grounds that “food security” is key.
The lure of protectionism, like that of socialism, seems eternal. In 1807, under Thomas Jefferson’s guidance, Congress passed the Embargo Act, which cut off all international trade. Jefferson believed that Europe needed our agricultural goods and would buckle. You might say he thought trade wars were “easy to win.” Within a year, the American economy collapsed. Congress repealed the act.
Most economists, businessmen and politicians have learned from history. Unfortunately, the man calling the shots prefers to get his information from the National Enquirer.