Thursday was the Calends of March, not the Ides of March, but the dagger that American manufacturers felt in their backs was just as painful.
Amid reports of chaos and indecision inside the White House, President Trump finally decided not to delay any longer and dropped a massive bomb on the economic recovery he had until this week been trying so hard and apparently successfully to build and promote.
A president who has promised to bring back manufacturing jobs announced that he is imposing steep new tariffs on two of the key raw materials used intensively in manufacturing industries that account for more than 2 million jobs, and less heavily in industries that employ even more.
His decision to tax steel and aluminum imports follows in a long line of awful decisions on these matters by Trump’s predecessors in Oval Office, all designed to curry favor with an industry long past its prime. And it is done at the expense of the broader economy and the entire population.
The stock market plunged precipitously immediately after the announcement, which gives us the opinion of people who are experts in assessing the value and probable profits of traded companies. But sharply lower share prices for manufacturing companies will be the least of the tariff’s consequences to the economy. Protecting what’s left of the steel industry is an attack on users of steel, notably domestic manufacturers of cars and appliances.
Oil extraction — one of the brightest spots in our economy since the 2008 crisis — requires steel equipment. When steel is more expensive, companies buy less steel equipment, and we get less activity by the energy industry. In turn, we have less energy for other economic activity.
Trump’s massive new tax on industry will cancel out at least some of the benefits of his tax reform that had started to put more money in workers’ pockets and to revive Republican fortunes in the run-up to the midterm elections. Job creators would much rather buy steel at lower world prices from foreign producers than take a hit to maintain the fiction that steelmaking is still an American economic strength.
The math demonstrates just how terrible this policy has been. When President George W. Bush imposed 30 percent tariffs on steel imports, it was estimated to cost nearly 200,000 jobs in steel-consuming industries — some 50 percent more jobs than existed in the entire steel industry at that time. Today, there are more than 2 million jobs in manufacturing industries that are considered “intensive” consumers of steel. Then, as now, it would have been much less economically destructive, and possibly cheaper too, to send every steelworker a check worth a year’s salary and a letter offering free job training.
The pain may not end with lost manufacturing jobs, because other countries are sure to retaliate with tariffs against American exporters. If these tariffs are harsh, Trump’s actions become a double whammy for U.S. manufacturing and a sharp blow to agriculture and raw materials as well.
Finally, what better way could there be to ruin Trump’s plans to rebuild infrastructure than to make steel 25 percent more expensive before the building work even gets started? Trump had better hope that the American workers who build those bridges, highways, and electrical transmission towers never figure out that their wages will be lower to compensate for the extra cost of raw materials he imposed on them.
Fortunately for Trump, they probably won’t recognize the connection between his protectionism and their portion of the diffuse pain he is causing. The relative handful of metalworkers made better off will, of course, notice the benefits to them, because all the benefits of his malign tariffs will be concentrated on them. People who don’t get a new job because a manufacturer decides to scrap expansion plans because of his higher costs will never know either, and perhaps consumers paying higher prices will not make the connection. But all of those affected by the diffused damage Trump has decided to do to the economy will feel slightly less optimistic and slightly less comfortable. And that has political consequences.
Trump and the Republicans, facing what appear to be politically challenging times, had found a path to save their majority in Congress. They needed to promote the economic success of their tax reform bill, and it was starting to work. Democrats had been caught in their own web of lies about tax reform, and its initial positive results were making believers out of more and more voters who first saw the difference in their paychecks in the last two or three weeks.
What a shame to throw all of that away, for the cheap thrill of currying favor with one stagnant but politically favored industry.
