Democrats And Tariffs
Trump finally made the formal announcement enacting the 25% tariff on steel and 10% on aluminum imports. In addition, he delayed the implementation of the tariffs on Mexico and Canada until there is a satisfactory resolution to the ongoing talks on updating NAFTA and opened up the possibility of exempting other allies on a case by case basis, specifically mentioning Australia because it has a trade deficit with the US. The tariffs will theoretically take effect in 15 days unless the President changes his mind or Congress takes action to reverse this decision. Jeff Flake has already introduced a bill to do just that.
This policy has managed to divide both parties, but perhaps Republicans more so then even Democrats. For Gary Cohn, the man who managed to stomach Trump’s response to Charlottesville, these tariffs were a bridge too far and he resigned in protest without stating as such. Paul Ryan, who has managed to turn a blind eye to so many of the issues with Trump and in the White House, has finally found the will to stand up to Trump on this issue, saying, “I disagree with this action and fear its unintended consequences”.
On the Democratic side, there has been criticism of those in the party who are critical of the Trump tariffs. They claim that this shows that the Democrats don’t understand, or don’t even care, about the difficulties of the working class. They object to what Erik Loomis calls the “kneejerk defenses of free trade just because Trump opposes it”. He points to a similar switch that some made on TPP as a further example of this.
But, for the most part, I think most of the criticism is not about the specific tariffs on steel and aluminum so much as the haphazard and potentially dangerous way they are being implemented. By initially making it across the board, Trump was risking a trade war with Canada, Mexico, the EU, and other supposed “partners”. Even with his exemptions, that risk still exists. Many in Canada believe that his linking the exemption to NAFTA amounts to extortion. And the EU is not going to allow its individual countries to “negotiate” the exemptions as Trump desires and will retaliate.
Moreover, even the Democratic supporters of these tariffs admit that it will do nothing to really boost employment in the steel and aluminum industries. Tim Ryan, the Democratic representative from Ohio, admitted as much on the Brian Lehrer show the other day, saying, “this countervailing duty is not going to have a huge effect on job growth; it’s not going to bring the steel industry back”. Ryan supports the tariffs on national security grounds but at the same time opposes how they being implemented, preferring targeted tariffs specifically on Chinese steel and aluminum.
Ryan lamented that the US down to just “2 or 3 aluminum companies”, but one of those companies is Alcoa, currently the 6th largest aluminum producer in the world, indicating that we clearly still produce more than enough aluminum to protect our national security. There are, however, other ways to accomplish our national security goals without tariffs that target our neighbors and allies. Surely, somewhere in the $2 trillion tax giveaway the GOP just passed there could have been some targeted tax treatment or similar method to subsidize these industries, such as forcing the Defense Department to only use US made aluminum and steel. Of course, those actions would be challenged in the WTO but so will these tariffs. And subsidizing the steel and aluminum industries is exactly what we are accusing China of doing, so it would be a reciprocal action.
In addition, another criticism of these tariffs is that they do not stand alone. They follow on earlier tariffs on washing machines and solar panels. With these new offers of exemptions, Trump also seems to be trying to realize his vision of essentially creating bilateral trade agreements on individual products in place of the current multilateral agreement structure. As Paul Krugman notes, “There’s a reason we have international trade agreements, and it’s not to protect us from unfair practices by other countries. The real goal, instead, is to protect us from ourselves: to limit the special-interest politics and outright corruption that used to reign in trade policy.” Trump, of course, is highly susceptible to the last special interest he talked to and outright corruption. And Trump’s focus on trade deficits is also highly misplaced as a large part of those deficits are a result of the strong US currency.
From a purely domestic political viewpoint, Trump is appealing to that segment of the working class that has been decimated by free trade and globalization with his attacks on trade as well as immigrants. As Ali Velshi noted on one of his segments on MSNBC the other day, the mantra of free trade was that it would increase GDP, raise corporate profits, and lead to job growth and higher wages for workers. It has certainly worked well for GDP and profits and as totally failed for workers. That’s largely because free trade creates winners and losers within the individual countries and the losers in America were largely manufacturing and industrial workers, especially in the Midwest.
The implicit promise of free trade proponents was that the increased national benefits would be distributed back to those displaced workers in order to offset their losses and help them transition to new jobs for the new economy. Unfortunately, there was absolutely no follow-through on this implicit promise. Instead, virtually all the benefits went to corporations and their shareholders as well as the top 0.1%. And the communities decimated by the deindustrialization have withered away and are exhibiting the pathologies of depression and drug addiction seen in highly impoverished areas.
Democrats certainly share in the blame for that ineffective response and have presented no counter-narrative that appeals to the dislocated and struggling working class. The party has underestimated what The Manhattan Institute’s Aaron M. Renn has called the “rage of those left behind”. But Tim Ryan nailed exactly what has been wrong with US policy for decades. He points out that China has “a broader strategy…[and is] rebuilding their own country moving toward renewable energy, wind solar, they’re moving to high-speed rail, battery powered cars…exploiting Africa for its natural resources to continue to feed its industrial machine.”
He continues, saying, “it’s hard for us in the United States because we really don’t have a long-term strategy. This move on tariffs is really a tactic, no long-term strategy”. This is exactly the point. Perhaps we should have had a strategy to protect a portion of our steel industry, or computer chips, or even solar panels, but we don’t. And worse, we don’t even reinvest the benefits we receive from globalization back in our own workers and our own country. In his interview, Ryan laid out what Democrats should do, namely “We’ve got to get Silicon Valley into the Midwest , we’ve got to get investment into the Midwest, we’ve got to lay broadband in the Midwest, we’ve got to do a new energy grid, we’ve got to push new renewable energy sectors of the economy that are growing by 20%-25% a year into coal country, into steel country”.
These priorities are included in the latest Democratic infrastructure proposal that posits spending “over $1 trillion into a wide range of infrastructure needs, including $140 billion for roads and bridges, $115 billion for water and sewer infrastructure and $50 billion to rebuild schools”. The proposal also includes “$40 billion to build high-speed Internet connections in rural areas and $80 billion to upgrade the country’s energy grid.” This will be paid for by moving the corporate tax rate to 25% and restoring some of the taxes on high income earners.
The workers in the Midwest know that steel jobs aren’t coming back. They know that coal jobs aren’t coming back. They appreciate the fight for $15 but what they really want is to get jobs in new industries that will pay the $40 or $50 an hour these workers used to have in the steel and coal sectors. Progressive policies can provide that.
Originally published at tidalsoundings.blogspot.com on March 10, 2018.