50% Tariffs on Steel and Aluminum?
As if the President’s trade policy couldn't get more insane, we all found out today that Trump has decided to raise his proposed tariffs on steel, and aluminum, to 50%.
When will Congress act and take this power away from the President? Trump said that he was on the way to Pennsylvania, and decided that the tariffs in question needed to go from 25% to 40%. But then he thought, actually, 50% would be better.
Why are we tolerating this insanity? One man is fundamentally changing trade policy based on how he feels at any given moment. How is this sustainable? How can businesses plan in the short term, let alone for the long term?
I'm sympathetic to the notion that we need to protect access to critical supply chains for items like steel and aluminum. Obviously, relying on adversaries for these materials is a terrible idea. But there are so many more effective ways we could approach this.
Why aren't we near-shoring steel production to our closest allies and neighbors, Mexico and Canada? Instead, through the use of tariffs, Trump is attempting to force steel and aluminum production to increase here in America. But that's not how industries respond to tariffs. Increasing the cost of imported materials from overseas is not going to magically result in steel and aluminum production popping off across America. That's not how any of this works!
Businesses make decisions for a litany of reasons, but fundamentally, we know that capital chases the most efficient means of production. Stated differently, businesses won't invest in projects that aren't profitable. If steel and aluminum production in America is a bad investment decision, then why would a tariff change that? What has changed fundamentally? Artificially raising the price of importing goods doesn't change the fact of why it was more efficient to import those goods in the first place! The fact is, some countries are better at producing particular things, for less money. America has transformed into a service economy that exports high margin items like software, financial services, biotech, etc. — you get the idea. We no longer rely on low margin goods for export revenue. We still export some of those things, like soybeans for example. But primarily, we've moved on to a more modern, service sector dominated economy. Even our manufacturing sector is modernized. We produce more with less workers than ever before. Modernization is a good thing. We don't need people to work in factories assembling small electronic devices en masse, nor do we need massive amounts of people stitching fabric.
Overall, this is like trying to jam a square peg in a round hole. And when someone points out that this policy is foolhardy, the President responds with defiance, and all of his Republican enablers in Congress are too scared to take back the power that the constitution gives them in the first place.
Maybe tomorrow he'll change his mind again. Maybe he backs down and decided to stick with 25%. Either way, the damage has already been done. Confidence in America as a stable place to do business has been shredded to pieces.