Wednesday, August 15, 2018

Tariffs and American Industry

The latest on Trump's tariffs:
Alcoa, one of the largest American manufacturers of aluminum, is asking the government for relief from tariffs that were supposed to help American aluminum manufacturers.

It turns out that businesses that make aluminum also have to buy things made of aluminum—and those purchases are now more expensive, thanks to Donald Trump's 10 percent tariff on aluminum imports.

Alcoa filed five requests for tariff exemptions with the Commerce Department this week, Bloomberg reports. Three of those requests are for types of aluminum that the company says are not available from American suppliers, and two are for aluminum products that are not produced in sufficient quantity by domestic sources. The Pittsburgh-based company wants exemptions so it can import those products and components from a Canadian subsidiary.
The reason I posted this is not just for the chuckle, but to think a little harder about trade wars. It seems to me that in the short term, Trump's tariffs are sure to be nothing but trouble, because American companies are set up to use parts and raw materials from all over the world. They are globalized, so impediments to the free movement of goods disrupt them. Nor can they magically increase the supply from domestic sources overnight to compensate.

But if there ever was any logic behind economic nationalism, it would have to be a long-term strategy: by improving the competitiveness of American factories it would create pressure for American companies to buy from them rather than from overseas. It might take years, but I don't see any logical reason why such policies might not increase American manufacturing of the protected goods. We might all end up a little poorer, but manufacturing workers and manufacturing towns would benefit.

Economists say that the costs are always greater than the benefits, but I don't put much faith in economists. Economists, after all, never lose their jobs to foreign competition, so why should they care? They like to talk about competitive advantage: under free trade each country or region specializes in what it is good at, leading to greater overall efficiency. But what if your region (Appalachia, say) has no competitive advantages? What if the industries in which the US has a competitive advantage are all those employing few workers without college degrees? What if a globalized economy means that managers and researchers in the US do great but workers suffer? It seems very clear now that China's entry into the WTO hurt a lot of American workers. Do we just say, too bad? Actually that is what we did do, and so we got Donald Trump and his trade wars.

Maybe there is nothing we can do for American workers at a price we would consider paying. But it baffles me that in my lifetime the only competitive presidential candidate to dissent from free-trade orthodoxy is a wrestling promoter with orange hair.

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