Here’s Why Labor Should Resist Trump’s Tariff
It will have little economic effect but will add more bellicosity to a world already overdosing on it.
The European Union has announced intentions to raise duties on red-state products like peanut butter, Harleys, and bourbon. (Announcing the measures, European Commission president Jean-Claude Juncker said, “We can also do stupid. We also have to be this stupid.”) China is also threatening retaliation; soybean farmers fear they may be targets. Whenever tariffs are in the news, mainstream commentators inevitably draw analogies to the Smoot-Hawley Tariff, the 1930 bill almost universally credited for helping make the Great Depression great by provoking a global trade war. Those are way overdone, but Trump was characteristically wrong when he pronounced trade wars “good, and easy to win.”
It’s not clear how Trump imagines victory in this fight. Let’s take a look at the economics of steel, an industry Trump equates with national greatness. If that’s the measure, American greatness has suffered from a long bear market. Back in 1958, the heart of an era that Trump seems to romanticize, steel accounted for less than 1 percent of total US employment. Twenty years later, 1978, it was down to 0.5 percent—and that’s
before the accelerated deindustrialization of the 1980s brought us the term “Rust Belt.” It’s now under 0.1 percent. But it’s not like steel itself is disappearing.
While steel employment is off 54 percent since 1990, the production of steel (by the Federal Reserve’s measure) is up 18 percent. Between 1990 and 2015 (the latest year available), productivity per hour of labor in the steel sector was up 151 percent. Labor’s share of value-added in the industry—the portion of the difference between revenues and costs of raw materials that’s paid out to workers—fell from 23 percent in 1990 to 13 percent in 2015. In other words, steel workers aren’t doing well, but the steel industry is doing OK. It’s not booming, but it’s solidly profitable. It’s hard to see how Trump’s tariffs are going to change this in any meaningful way.
We have some recent experience with steel tariffs, the ones
imposed by George W. Bush in March 2002. Bush lifted them in December 2003, under threat of retaliation by the EU, with another politically well-selected set of targets (Florida oranges, and Harleys again), and complaints by domestic steel users.
During the 21 months they were in effect, steel employment fell by 9 percent, but production rose by 20 percent. There’s evidence that steel-using industries, like autos and appliances, took a mild hit from the resulting higher prices; a survey by the US International Trade Commission, an independent, quasi-judicial branch of the federal government, found higher steel prices, at least for a while, that were hard to pass along, and mildly increased difficulty in sourcing steel. Overall, the ITC estimated that the tariffs resulted in a “welfare loss” of $42 million, an almost immeasurably trivial amount by the standards of the US economy. Of course, the story could have been different had Bush not lifted the tariffs, and the retaliations escalated. It wouldn’t be surprising if Trump does the same; he’s already making exceptions—though it’s worrisome that he is now ordering his aides to prepare a fresh set of tariffs on Chinese goods.
Well, I guess we are going to find out if the world comes to an end or not now!