Imposing punishing tariffs on imports of aluminum and steel is a bad idea. Such tariffs wouldn’t have any immediate effect of revitalizing production of those commodities in the U.S. The best-case scenario would be that those industries might slowly regain their footing over years or decades. But even in that unlikely scenario, the 21st century versions of metal production aren’t going to produce a huge surge in employment given the inexorable trend toward automation.
The tariffs do threaten an immediate impact, however, on industries that depend on steel and aluminum as major inputs. Those industries include manufacturers of service bodies and of the many accessories on service trucks. The worry — as enunciated by many exhibitors and attendees at the annual Work Truck Show this March in Indianapolis — is that the tariffs will take some the steam out of industries that have been humming along in recent years.
Now, the good news is that President Donald Trump has backed off on his initial threat to impose those tariffs on Canada and Mexico. But he is still threatening to impose them should the negotiations on a new North American Free Trade Agreement not produce a deal to the president’s liking.
So this story hasn’t gone away.
Two major associations representing manufacturers of truck equipment — the National Truck Equipment Association and the Association of Equipment Manufacturers — were quick to condemn the tariffs. The NTEA has called for a permanent exemption on the tariffs for Canada and Mexico regardless of what happens with NAFTA. And the AEM took the unusual move of producing a TV ad aimed directly at the president. The ad contains an impassioned plea from manufacturing workers, who indicated they are prepared to fight in order to prevent the tariffs from threatening their jobs. The ad aired on Fox News shows that the president is known to watch faithfully.
What’s most interesting about those ads is that they include support for the tax cuts and regulatory rollbacks that the president has championed. The problem is that the tariffs threaten to erase the gains from those other initiatives.
Yes, it does look like the left hemisphere of the president’s brain doesn’t know what the right hemisphere is thinking. At the very least, the trade policies he espouses aim to restore U.S. manufacturing and its employment to an economic reality that no longer exists — if it ever did. Trade, as any economist will attest, is not a zero-sum game. In the 21st century, more than ever, countries leverage their comparative advantages to dominate the world in production of certain goods and services. That’s how most of our shirts have come to be made in Bangladesh and how Canada is a world leader in aluminum production.
Just to consider that latter example for a moment. Canada doesn’t mine any bauxite, the raw material for making aluminum. But Canada, particularly Quebec, produces a lot of cheap hydro electricity, which reduces the cost of electricity-intensive aluminum smelting.
Yes, the spoils of comparative advantage have not spread equally or equitably across the planet. The sacrificial lambs of globalization have included U.S. manufacturing jobs. As noted by an article on the Politifact website this spring, U.S. manufacturing jobs as a proportion of overall employment dropped from 8.98 percent in 1970 to 3.7 percent in 2010.
But since then, the bleeding has stabilized, and even crept up to 3.89 percent in 2018. We suspect that many of those jobs are in niche industries, such as the manufacture of service trucks. They lack the volumes that manufacturers in low-wage countries covet. They require levels of specialization and sophistication that are difficult to find or develop in other parts of the world. In other words, the sectors represent a comparative advantage for the U.S.
On their face, tariffs might look like a sensible strategy for protecting a country’s interest against foreign competitors. But in practice they are crude weapons that cause too much collateral damage. The best course would be international trade agreements. And yes, those agreements should include provisions for fair wages, working conditions, and environmental protections — even if they need to be phased in.
So it’s encouraging that President Trump, in thinking out loud, has flip-flopped on U.S. participation on the Trans-Pacific Partnership agreement. (That said, we recognize that a knock against the TPP is its preoccupation with intellectual property rights. But it’s at least a start). Unfortunately, we have come to expect the unexpected from the president when it comes to trade and tariffs.
Here’s to hoping that he’s taking heed of the AEM TV ads.
