Trump’s tariff agenda does not make economic sense

Donald Trump has a long and lurid history of impulsive behaviour – just ask the tabloids – but his decision to impose tariffs on steel and aluminum seems shambolic even by his standards.

His announcement on Thursday included indefinite exemptions for Canada and Mexico while NAFTA is being renegotiated but didn't back off his standard message that other countries are taking advantage of the United States.

The new levies, including a 10-per-cent tariff on aluminum and a 25-per-cent hit on steel, may simply be designed to bolster support among his political base ahead of midterm elections in November. More worryingly, they could signal the Trump administration's lurch into full-on protectionism.

In either case, the President is signalling his willingness to punish allies, penalize U.S. manufacturers and endanger the global trade system. He's doing all this in order to advance an agenda that doesn't make a lot of economic sense.

Consider the new tariff on aluminum imports. It may play well in parts of the U.S. Rust Belt. However, it suffers from the fundamental problem that it threatens to deliver a nasty blow to Canada, one of America's closest allies, while barely touching China, the heart of the trade issue.

The Asian nation has been accused for years of lavishing subsidies on its domestic aluminum industry as a way to gain market share. It supplied a mere 10 per cent of the world's primary aluminum in 2000; it now produces more than half. Its booming output has hammered producers in Canada, the United States and Europe.

A rational U.S. policy might target the Chinese aluminum producers responsible for this global glut. Instead, Mr. Trump's tariff policy is far more sweeping and applies to all countries that don't succeed in getting an exemption.

As long as the tariff threat exists, Canada's aluminum industry, which employs more than 9,000 people, lives under a cloud of uncertainty. Yet the Canadian industry, which supplies about half of U.S. aluminum requirements, isn't seen as an unfair trader. In fact, it has stood shoulder to shoulder with its U.S. and European counterparts in demanding relief from the flood of Chinese aluminum.

Despite that united front, Canada's aluminum industry could wind up suffering grievous damage from Mr. Trump's new tariffs – quite a reward for being a reliable ally. Meanwhile, China, the fourth-largest supplier of aluminum to the U.S., would sustain only a glancing blow.

The tariffs seem just as impractical when viewed as a way to spur U.S. business. Only about 142,000 Americans work in the steel industry, according to the American Institute for International Steel, a free-trade advocacy group. In contrast, about 6.5 million Americans are employed by steel-consuming businesses. Higher steel prices as a result of tariffs would hurt far more people than they help.

Aluminum tariffs are also likely to be a net loss for Americans, according to Harbor Aluminum, a consulting firm in Austin, Tex. It estimates the new tariffs, if imposed in full, would create about 1,900 jobs in U.S. aluminum smelters but destroy at least 23,000 jobs in U.S. manufacturing.

This ugly math does not constitute inspired policy-making. But it seems almost benign in comparison with the threat Mr. Trump's new policies pose to global commerce.

The World Trade Organization (WTO), the body in charge of regulating international trade, lays down rules on what countries can do to protect their industries from foreign competition. The U.S. tariffs obey the letter of those rules, but they flout their spirit.

The President says he's taking action on the basis of national security, something that is permissible under WTO rules but rarely done – except in extreme situations. In this case, few people believe the national-security excuse: Only a small fraction of aluminum and steel imports go to military uses, and the U.S. actions target all imports, not just a few bad actors. The real motivation appears to be simple protectionism.

If other countries copy Mr. Trump's tactic, they could build tariff walls around any industries they consider important by declaring them vital to national security. Alternatively, they could view his moves as a "safeguard" action against an unexpected surge in imports and retaliate in proportion to the damage they've suffered. The European Union, for instance, is already considering imposing tariffs on U.S. jeans and bourbon.

Mr. Trump doesn't seem bothered by any of this. He thinks of himself as the consummate dealmaker, and the new tariffs provide a powerful cudgel to beat negotiating partners into shape. Get ready for more Trumpian bluster ahead.