On Friday, President Trump introduced a proclamation to enact steel and aluminum tariffs on imports from foreign countries. There will be a 25% duty on steel and a 10% charge on aluminum. Free trade advocates around the world (but mostly outside the US) were up in arms. How could a country that prides itself on free trade so publicly denounce the bedrock of its economic foundation? Well, mostly because trade has not been “free” for a long time.
While certain aspects of globalization have led to a welcome reduction in prices of every day items, other elements of globalization have led to the wholesale shutdown of entire US industries. The steel industry, for example, is dominated by China. China alone produces about half of the world’s steel, producing as much itself as the rest of the world did combined in 2000. In the past 18 years the US went from producing 12% of global steel, to just 5% today. It highlights in just a very small way the effect globalization has had on the middle class in the US. All those steel factories provided strong middle class jobs which no longer exist.
But this tariff debate goes far beyond jobs and revenue. On some level this is about national security. I understand the US and China will never go to war, and I understand we will always resolve all disputes, but just in case the unthinkable happens, would we as a country like to have the lions share of our steel being produced by the very country who may be the one we have a problem with? We are not talking about having to create an entirely new industry. We have these factories, we have these skilled laborers, and we have the raw materials. What we do not have is labor cheap enough to compete with China, Vietnam, and Turkey. The average Chinese worker makes a fraction of what an American makes, and a Vietnamese worker even less. If we are talking about importing TVs or some other consumer good with little in the way of ties to national security, perhaps we let free trade work its magic. However, steel is not a consumer good. It is an industrial good. It is what builds skyscrapers, schools, trucks, power plants, hospitals, oil rigs, etc. Much of what we consider important in this country is built with steel.
Many people, like me, with an economics background are a little stuck on this issue of tariffs. We were taught they are fundamentally bad and should be avoided at all costs. But just because something is nearly always right, does not make it universally right. Our capitalist economic system does not guarantee free commerce, nor is it free of social programs. Even free speech, one of our most important rights in this country, is by no means universally free. There are limits to all of these ideas. Free trade and fair trade are different. Geographical arbitrage between countries with vastly different pay structures, environmental guidelines, and safety standards for their workers must be taken into account. A country that gives an industry massive tax breaks so they might export products at artificially low prices is neither free trade, nor fair trade.
So while the idea of tariffs may make me cringe, the idea is not universally wrong. It is just mostly wrong. We must give consideration to important industries and accept that there is such a thing as dumping, and tax advantages that create unfair competition. Open markets, free speech, gun rights, all have their share of controversies. We are a successful country because historically we have taken the time to think through as best we can the pros and cons and then act with purpose. We will do the same on tariffs.