Trump Repeats Nixon's Folly

This president isn’t the first to embrace a “trade war” to bolster his populist credentials—but in the end, it’s ordinary people who will bear its cost.

Smoke rises at a steel mill in the outskirts of Beijing. (Elizabeth Dalziel / AP)

President Trump just raised the price of cars, beer, vacations, and apartment rentals.

That’s not what most headlines say. Those headlines say that Trump will raise tariffs on steel and aluminum. Higher tariffs mean higher prices for those inputs—and therefore for the products ultimately made from those outputs. Automotive and construction top the largest users of steel in the United States. Aluminum is heavily used to make airplanes, cars and trucks, and beverage containers, and also in construction.

The last time the U.S. imposed steel tariffs, back in 2002, the project was abandoned after 20 months. A 2003 report commissioned by industries that consumed steel estimated that the Bush steel tariffs cost in excess of 200,000 jobs—or more than the total number of people then employed in the entire steel industry at the time.

This time the cost-benefit ratio is likely to skew much worse. There are fewer steel jobs to protect this time. Auto sales growth has stalled. The first warnings of consumer price inflation are appearing.

But Trump wanted tariffs, and tariffs he has got. Even by Trump standards, the decision-making process was chaos. As late as 9 p.m. last night, it remained undecided whether there would be an announcement today at all—never mind what that announcement would be. Key congressional committee chairs were unconsulted and uninformed.

The president as so often relied on junk information. The advice of the economic populist Peter Navarro (previously best known for blood-curdling anti-China documentaries) was heeded over that of actual trade experts. Industries seeking protection reportedly bought commercials on Fox & Friends. Apparently a decisive event in the debate was the firing of staff secretary Rob Porter, after revelations that he had engaged in spousal abuse. Porter had also chaired the weekly trade debate, forcing the president to confront the costs and harms of protectionism. His removal also empowered Trump’s worst instincts.

The usual rules of trade policy were ignored. For authority, Trump invoked a trade law premised on protecting war-essential industries. Yet this authority is plainly a pretext. The Department of Defense intervention in the debate shredded the logic of protectionists like Commerce Secretary Wilbur Ross, himself a former steel man.

U.S. military requirements for steel and aluminum each only represent about 3 percent of U.S. production. Therefore, DoD does not believe that the findings in the reports [of harm to domestic steel and aluminum producers from foreign competition] impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.

What did alarm the Department of Defense about proposed steel and aluminum tariffs was potential harm to vital U.S. alliances. China does not rank among the top 10 steel exporters to the United States. That list is topped by Canada, followed by Brazil. In third place is South Korea, an indispensable ally in the preemptive war the Trump administration is now contemplating against North Korea.

Canada also heads the list of aluminum exporters. For that reason, DoD pleaded for even more caution with regard to aluminum tariffs than steel. “[If] the Administration takes action on steel, DoD recommends waiting before taking further steps on aluminum.”

Trump announced simultaneous action on both—without itemizing which countries would be subject to the tariffs, and which exempt. Trump’s unpredictability and threatening language have not only jolted U.S. financial markets, but have done further damage to the U.S.-led alliance system. European Union trade ministers agreed earlier this week to retaliate if the U.S. imposes steel tariffs, further degrading a U.S.-EU relationship already badly damaged by Trump’s hostility to NATO and deference to Russia.

Donald Trump is often compared to Richard Nixon in his disdain for law and ethics. The parallel applies to economics too. Nixon in 1971 quit the Bretton Woods agreement and imposed a surtax on all imports. The “shock” disrupted the world economy and profoundly angered formerly trusting friends already uneasy over the war in Vietnam. But Nixon, who knew little and cared less about economics, had his eye fixed on one concern only: the 1972 election. His emergency economic measures—joined to a loosening of monetary policy and a big increase in Social Security payouts the next year—were selected with an eye to one concern only. In the words of Allen Matusow, the shrewdest student of Nixon’s economic policy, “Somehow he had to make the economy hum by 1972 or face likely defeat in his quest for reelection.” What that meant in practice, Matsuow wrote, was that Nixon governed not according to what would work in the long term, but according to “the prevailing mood of the two-thirds of the country he called the ‘constituency of uneducated people.’”

Nixon did indeed win in 1972. He also bequeathed his country not only the worst political scandal in its history to date, but a decade of stagflation that bore most heavily upon the very people Nixon claimed to champion. We’ve been there before; it looks like we’re returning there again.