How to Make America’s Next Trade Policy



Clark Packard, Scott Lincicome, Dr. Kimberly Clausing, and Dr. Mary Lovely | The Bulwark

For nearly 80 years, the United States was the chief architect and foremost defender of the global rules-based, liberalized trading system. The twin aims of this bipartisan policy were to promote U.S. economic and strategic interests—and on both counts, the nation’s efforts have been successful. Increasing economic interdependence and globalization more broadly have fueled economic growth and innovation, raised a billion people out of poverty, and discouraged the kind of bloodshed that was all too common before the advent of the global trading system.

Despite these successes, however, the system is facing its most serious and credible threat since the early 1930s, when beggar-thy-neighbor protectionism spread across the globe and fueled both the Great Depression and World War II.

Under the false promises of economic nationalism, President Donald Trump has abdicated the commercial leadership supported by his predecessors stretching all the way back to Herbert Hoover. The president has withdrawn the United States from the Trans-Pacific Partnership (TPP), a promising trade agreement with Pacific Rim countries; threatened to withdraw from valuable institutions like the World Trade Organization (WTO) while crippling its adjudicatory function; recklessly imposed tariffs on longstanding allies under the dubious guise of national security; and spurned those allies to wage an ad hoc and aggressive unilateral trade war against China.

These ill-advised policies have hurt American families and businesses, damaged U.S. competitiveness in an increasingly globalized 21st century economy, triggered predictable retaliation from trading partners, sewn uncertainty, and alienated the very allies America needs to tackle legitimate challenges facing the global economic system.

By erecting new barriers to trade and investment while working outside the confines of the rules-based system, the United States is rapidly squandering decades of hard work and foresight at a time when much of the rest of the world—particularly the economies home to Americans’ biggest competitors—pushes forward with more liberalization.

As 2020 presidential candidates campaign across the country, we are concerned that they are failing to grasp the severity of the situation they would inherit upon entering the White House. It is imperative that the next president work diligently to re-establish the United States as the global leader and defender of rules-based trade liberalization. A candidate wishing to adopt a bold, forward-thinking trade policy agenda for the 21st century should promise to:

Withdraw the National Security Tariffs and Threats of National Security Tariffs

Previous presidents, who rightly understood that false claims of national security undermine real ones, used their authority to restrict imports in the name of national security sparingly and judiciously. Today, that is not the case. After dubious Department of Commerce studies determined that imported steel and aluminum jeopardize the national security of the United States, President Trump levied steep duties on these metals in early 2018. Meanwhile, the Defense Department estimates that “U.S. military requirements for steel and aluminum each only represent about three percent of U.S production.”

Now the White House is considering whether to use national security tariffs to restrict imported automobiles and automotive parts.

Imported steel, aluminum and automobiles do not jeopardize national security. Instead, President Trump is, by his own admission, using the threat of national security tariffs to extract from our trading partners more favorable treatment of American exports. This belies the intent of the statute and ignores the fact that the United States has negotiated a number of successful trade agreements without resorting to reckless, self-defeating national security tariffs.

The president’s national security protectionism has triggered predictable retaliation from trading partners, ensnaring unrelated industries like agriculture in the back-and-forth and raising the cost for U.S. firms reliant on imported steel and aluminum. Economists Dr. Kadee Russ and Lydia Cox recently concluded that there are “75,000 fewer jobs in manufacturing attributable to the March 2018 tariffs on steel and aluminum, not counting additional losses among U.S. exporters facing tariffs other countries levied in retaliation.”

Meanwhile, companies like Harley Davidson face a one-two punch: higher costs for inputs due to the steel tariffs and retaliatory tariffs from the European Union. This led Harley, an iconic American brand, to shift some production overseas.

At the same time, the tariffs have failed to revitalize the industries they were ostensibly designed to protect. As The New York Times reported, “There are fewer aluminum production jobs in the United States than a year ago, while steel mills have added only a few thousand jobs.”

According to economists at the Peterson Institute for International Economics, each steel job created due to the tariffs is costing consumers about $650,000. Meanwhile, steel and aluminum producers, most notably U.S. Steel, have shuttered factories in the face of high input prices and sagging demand and have seen their stock prices tank.

On top of the direct costs and failed objectives, the national security tariffs and threatened tariffs have strained commercial relations with longstanding allies. Though the president reluctantly removed the steel and aluminum tariffs on imports from Mexico and Canada after it became clear they were a hurdle to ratifying his NAFTA replacement, the remaining tariffs are still in place for virtually every other trading partner, including Japan and the European Union.

To spare families and businesses from needless pain and rebuild trust among valued allies, the next president should withdraw the steel and aluminum tariffs, pledge not to impose national security tariffs on automobiles and automotive parts, and work with Congress to enact meaningful restrictions on unilateral tariff authorities.

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Clark Packard is a Resident Fellow and Trade Policy Counsel at the R Street Institute.

Scott Lincicome is an international trade attorney and Adjunct Scholar at the Cato Institute.

Dr. Kimberly Clausing is the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College and the author of Open: The Progressive Case for Free Trade, Immigration, and Global Capital (Harvard University Press, 2019).

Dr. Mary Lovely is a Senior Fellow at the Peterson Institute for International Economics and a Professor of Economics at Syracuse University.