Five Reasons Why Trump's Tariffs Are Crazy

Effective today, U.S. President Donald Trump’s much anticipated tariffs on steel and aluminum take effect. I’ve been tracking this with dread for two years, and finally here it is. Although I accept Chinese foul play deserves a response, I am against these tariffs. Here are five reasons why.

1. Tariffs are like biological weapons – If economics is thought of as warfare, then tariffs are a bit like bio-weapons: clumsy, imprecise and, worst of all, contagious. Esteemed economist Alan Blinder wrote an editorial in the Wall Street Journal attacking the idea on exactly this basis:

“Trade wars have a way of intensifying. Almost immediately after you [Mr Trump] announced your tariffs, the European Union warned that it would slap penalties on American bourbon….You then replied that the U.S. could impose tariffs on European cars. That is exactly how trade wars escalate.”

China, the supposed target of American ire, is only our fourth largest steel supplier after Canada, Brazil and South Korea. Punishing friends because they’re in the wrong place seems a very messy way to send a negotiating statement to Beijing. Will it get out of hand? It did in the 1930s.

2. Tariffs could jeopardize billions in U.S. investment globally – SCM World survey data on planned supply chain job creation includes plenty of investment in countries that’ll likely respond if the U.S. starts a trade war. The biggest concentration of such investment is in China. Plus, as we’ve found in previous research, most of that investment is meant to support new sales in Asia, especially China itself, which means revenue is at risk.

It’s also fair to assume these hiring plans include spending on property, plant and equipment. Do we really want this investment put in a hostage situation?

3. Jeopardizing 10 jobs to protect one doesn’t make sense – When the tariff idea first hit the Twitterverse, U.S. stocks fell. Among the worst hurt were steel-dependent domestic manufacturers like Caterpillar. At the other end of the spectrum, I spoke to the president of a small exercise equipment manufacturer who saw his costs jump immediately and was obliged to hold more raw material inventory out of concern about shortages.

Every other industry hates this idea, from farmers who fear retaliation to retailers who worry about price increases dampening consumer spending. It’s a lot to pay for a few hundred thousand jobs in two mature industries.

4. U.S. economic vitality doesn’t depend on protecting steel and aluminum – There was a time when steel was everything. It was the early 20^th century. Even Stalin took his name from it and built a disastrous Soviet economy on a misunderstanding of how and why it mattered.

It’s been a full century since steel made Pittsburgh rich. The steel city has shown the way forward by developing medical, information technology and other growth businesses to replace it. The future is about intellectual property-based industries like software, aerospace, biotech and media. Risking the health of these sectors to prop up base metals is like clamping down on the automobile to preserve blacksmithing.

5. China’s real crime is IP theft, and this won’t help – We had it right with the Trans-Pacific Partnership. It combined 12 countries and was anchored by the United States. It excluded China specifically to counterbalance Chinese trade power in the region and targeted intellectual property protection as a primary objective.

Trump dumped it in favor of a weak, imprecise, self-destructive trade negotiating tactic that is more likely to stall U.S. growth than bend Chinese policy.

That’s crazy.