Challenging Trump's Tariffs

Challenging Trump's Tariffs - An Ongoing Series

In a new series challenging Trump's tariffs, we argue that the President's trade policy is illegal, recklessly ignorant, damaging to the US economy, and historically unpopular. Congress must step up and rescind the tariffs this fall.

Trump's Tariffs Are A Growing Threat To The American, And Global, Economies - 11/28/18 - US growth expectations have fallen, manufacturing and agricultural firms now face higher costs and weaker demand, and the trade deficit has surged. With a President unwilling or unable to grasp the risks of a broader trade conflict, it is up to Congress to challenge Trump far more directly on his reckless trade policies.

Iowa, Trump, and the Politics of Globalization/Tariffs - 10/12/18 - Trump’s trade policies are hurting the Iowa economy. His tariffs are unpopular there, and his party is performing badly in the fall elections. Some thoughts on what this means for the Democratic presidential race starting soon. 

A Quick Take on NAFTA 2.0 - 10/1/18 - In a new analysis, Chris Taylor argues that NAFTA 2.0 is a largely cosmetic revision to its predecessor that borrows heavily from Obama’s TPP.

Daily Trade Polling Update - 9/28/18 - Recent polling on Trump's tariffs and trade policy. All in one place. Updated daily. 

Whatever Happens With Mexico, Trump’s Trade Policies Are Harmful And Need To Be More Aggressively Challenged - 8/29/18 - In a detailed new analysis, NDN's Chris Taylor explains why Trump's trade policies are harming the US, and need to be more aggressively challenged.

Trump's Tariffs Will Do Lasting Economic Damage If Not Opposed - 8/14/18 - Trump's trade policy is enacting large costs onto average American workers that will be felt for generations. Congress must act to rescind these tariffs, before US manufacturers and farmers permanently lose out on much of global consumer demand. 

On Tariffs, Trump's Reckless Ignorance Can No Longer Go Unchallenged - 8/8/18 - To a shocking degree, Trump doesn't understand how trade and tariffs work - and they are illegal to boot. Congress should rescind them this fall.

Trump's Tariffs Are Illegal, And Should Be Rescinded - 8/3/18 - Trump’s trade war uses the false pretense of “national security” to sidestep the checks and balances of the legislative branch. Independent of their ideological position on trade, Congress must stand up to this creeping authoritarianism.

Related readings:

Democrats Need To Have A Big Conversation About Trade - 5/16/18 - Recent Pew polls show Democratic voters are overwhelmingly supportive of free trade. Simon takes a look at what this means for the Party.

Trump's Iran Deal Withdrawal is an Arrogant Rejection of the Postwar System America Built - 5/10/18 - In a new column, Simon says Congress must begin debating Trump’s sustained effort to undermine the post WWII order. 

An Enduring Legacy: The Democratic Party and Free and Open Trade - 1/21/14 - The global system created by Presidents FDR and Truman has done more to create opportunity, reduce poverty and advance democracy than perhaps any other policies in history. 

Iowa, Trump, and Politics of Globalization/Tariffs

(This is the seventh article in a series produced by NDN challenging Trump’s tariffs)

From 2012 to 2016, Iowa shifted a net 15 percentage points from Obama to Trump, the largest such shift of any state in the nation. As we look to the upcoming midterms, however, the politics of the state seem to have changed significantly. Similar to the other Midwestern states, the Republican Party seems to be taking a hit, and the House and Gubernatorial races in Iowa appear to be strong pick-up opportunities for Democrats. We don’t know exactly why this shift has occurred, but part of the reason seems to be trade. And for good reason. NDN sees three major motivations for why Iowans would oppose Trump’s protectionist trade policies.

Globalization has greatly benefited Iowa

The new era of globalization that began in 1989 and saw the US become more economically integrated with China, Mexico, Canada, and the EU (among others) has been very good for Iowans. The state exported $13.2 billion in 2017, or 7% of its GDP, and foreign trade supported 450,000 jobs, equal to 20% of all jobs in the state. Rather than experience a decline, trade-related jobs actually grew 4.5 times faster than total employment in Iowa in 2004-2014. Furthermore, the trade deals that the President has slammed the most, the original NAFTA and agreements with China and the EU, have provided the most jobs in the state. Canada is the market for 31% of Iowa’s exports, while Mexico accounts for 17%, China 4%, and Germany 3%.

The result of this global integration has been a very strong economy. From 2011 to 2017, Iowa’s GDP per capita increased by 11.3%, faster than the 8.3% registered by the country as a whole. Furthermore, the state’s current unemployment rate is 2nd lowest in the nation at 2.5%, significantly lower than the 3.7% national unemployment rate and the 4% rate that economists consider to be full employment. Finally, Iowa continues to be a national leader in poverty reduction, having the 7th lowest poverty rate in the country at 9.4% in 2017, compared to a national average of 12.5%. While Trump constantly speaks of trade creating economic “carnage” across the nation, Iowa instead has developed a prosperous economy on the back of foreign integration. In fact, Iowa has a large trade surplus of $4.2 billion, further illustrating that foreign competitors haven’t overwhelmed Iowan industry but rather have complemented it.

Trump’s trade policy has damaged the state’s economy

Trump’s trade wars have caused serious disruption to Iowa’s economy, and risk causing an outright recession in the state if continued. Retaliatory tariffs on Iowa’s major exports, in response to Trump’s imposition of wide-ranging tariffs, have significantly reduced demand for those exports, resulting in large declines in the prices received by farmers and workers throughout the state. Soybeans, responsible for 24% of Iowa’s exports, have seen their price decline by 16% in 2018 alone. Pork and corn, responsible for 15% and 13% of total exports, have seen their prices decline by 15%. The overall result has been a large decline in income earned by exporters throughout the state. A new study from Iowa State University estimates that the trade wars could cause an overall income decline of $2.2 billion in Iowa, equal to 1.2% of the state’s GDP. Even the Trump administration has admitted its policies are harming incomes across the state, as it has already provided almost $550 million in bailouts to farmers hurt by the tariffs.

While Trump has touted the new NAFTA agreement as a breakthrough for Iowa’s farmers, new market access to the Canadian dairy market totals only $70 million for all US exporters, an insignificant amount given losses of up to $40 billion to American exporters as a whole. Furthermore, the loss of foreign market access by Iowan workers is not likely to be short-term in nature, regardless of when the trade war is ended. Major competitors to Iowan farmers, predominately Brazil and Canada, are taking advantage of tariffs on US exports to take market share from Iowans. Brazilian soybean exports to China have jumped 22% in 2018 alone, as exports from Iowa dry up. As a result, even if the tariffs are rescinded, supply chains will have refocused to exclude American, and Iowan, exporters for the long run.

Iowans recognize these facts and strongly oppose Trump’s tariffs

Iowans heavily oppose Trump’s trade policy in state-wide polling, and have punished Republican incumbents running in the state. Republican incumbents in the 1st and 3rd House Districts are trailing their Democratic opponents while running 22 and 15 points behind their own 2016 performances, while the incumbent Republican Governor is also losing while running 26 points behind the GOP’s performance in the 2014 governor’s race. This follows a clear trend, previously discussed by my colleague Simon Rosenberg, of Trump significantly underperforming his 2016 numbers throughout the Midwest.

While we don’t know the exact causal effect of the tariffs on this shift, it has to be noted that Trump’s trade policy is significantly underwater in the state. Across Iowa as a whole in September, 52% of likely voters thought that Trump’s tariffs would be bad for Iowa’s economy while only 24% said they would be good.  In the key battleground district of Iowa 1, meanwhile, likely voters opposed Trump’s tariffs on steel and aluminum by a 55-36 margin. This follows other polling in the region that found Trump’s tariffs opposed 41-26 in Missouri, 46-28 in Pennsylvania, and 57-31 in Wisconsin. Even though Iowans swung so strongly towards Trump in 2016, they realize the positive impact of foreign trade on the state, and are unwilling to support Trump’s reckless trade policies.

Looking ahead to the 2020 Democratic primary in Iowa

The economic and political realities described here raise some interesting questions about how the Democratic presidential candidates are going to address these issues in the coming months. The state’s direct ties to foreign trade, the significant decline in Iowan agricultural exports as a result of Trump’s tariffs, and their unpopularity will make it very difficult for Democrats to embrace Trump’s tariff and trade policies, something Democrats have done in some states this year. In fact, it would be appear, based on this analysis, that it would benefit Democrats to clearly attack the tariffs as policies hurting everyday Iowans. 

How Democrats play the trade issue in the Presidential race next year will be fascinating to watch. Democratic voters overwhelmingly support free trade. Trump’s economic policies, including his tariff policies, are weakening both the US and global economies. His protectionist policies are deeply unpopular, and his party is about to suffer huge losses in the Rustbelt and Midwest. Given all this, the Democratic presidential candidates would be smart to study these issues hard, and make sure they don’t somehow align themselves with policies which are contributing to the unraveling of the strong recovery Trump inherited and which are doing direct harm to American businesses and workers across the country. 

Quick Take on NAFTA 2.0

This is the sixth article in a series produced by NDN challenging Trump’s tariffs.

Last night, negotiators from the US and Canada unveiled an agreement that would include Canada in the already announced US-Mexico trade deal, thereby setting the stage for the passage of a revised NAFTA deal within a few months. Trump was quick to herald the “historic” deal but similar to the agreement with Mexico (and that with South Korea signed last week), the agreement fundamentally keeps NAFTA the same and adds in only a few cosmetic changes. The following are NDN’s three major takeaways from the deal.

The deal is largely cosmetic

The deal with Canada is exceptionally narrow, and affects only small parts of either country’s economy. The major update concerns Canada’s agreement to eliminate a subsidy program for milk products (called Class 7 milk), thus opening the Canadian dairy market to US farmers. However, milk products account for only $364 million in US-Canada trade, or 0.06% of total cross-border trade. Further, the deal gives US farmers access to 3.6% of the Canadian dairy market, compared to 3.25% given under the TPP. In total, therefore, US farmers will have access to $66 million in greater export opportunities. By comparison, from 2017 to 2018 American farmers saw a decline in income of $12.5 billion as a result of Chinese retaliation to Trump’s tariffs, or 190x the increase in export opportunities from this deal and 34x the size of the entire dairy trade between the US and Canada. Furthermore, the large varieties of other protectionist measures that both countries use to protect their dairy farmers remain in place. Indeed, the Class 7 milk program was only first implemented in spring 2017, meaning that US dairy exporters now face the same level of Canadian protection as they did when Trump took office in January 2017.

The two other major parts of the deal – a 16-yr sunset clause and the retention of the Chapter 19 dispute resolution mechanism – actually keep NAFTA more of the same. The 16-yr sunset clause (significantly longer than the 6-yr one Trump wanted) pushes another re-negotiation a long way down the road, while the Chapter 19 mechanism (which was in the 1994 NAFTA agreement) allows Canada to more successfully challenge US anti-dumping tariffs on lumber and other products. This narrowness is comparable to the small impact of the US-Mexico deal agreed to last month. The major change in that deal, a revision to rules of origin for autos, is likely to impact only 1-in-10 Mexican car exports to the US through its North American content requirement and 1-in-3 through its wage requirement. Even that likely won’t affect the structure of production because automakers can simply accept a 2.5% MFN tariff outside of NAFTA if their costs increase by more than that 2.5% amount.

The agreement is slightly pro-free trade

The deal with Canada is actually pro-free trade in nature (to the extent that it changes anything), in major contrast to Trump’s arguments that more trade destroys jobs. The Class 7 milk subsidy was a protectionist measure by Canada that reduced trade flows, so its abolition will lead to larger cross-border trade. Likewise, the US concession to keep the Chapter 17 dispute resolution mechanism makes it harder for Trump to impose tariffs on Canadian lumber and other goods in the future – another win for free trade. Finally, another US concession in the deal granted Canada 2.6 million tariff-free car exports in the event that Trump enacted a blanket tariff on car imports. Given that current Canadian car exports to the US are 1.8 million cars, this means that Canada will not be affected by a potential car tariff. This pro-trade axis contrasts slightly with the US-Mexico deal, which de facto imposed a small tariff on Mexican autos and auto parts. However, this tariff would affect only 1-in-3 Mexican autos and at maximum at a 2.5% rate, so the overall level of protectionism in the US-Mexico-Canada deal is likely a wash or negative. One thing still to be seen is the fate of Trump’s steel and aluminum tariffs on Canada and Mexico, which have not been repealed as part of this agreement.

The deal is a less ambitious version of the TPP

The deal with Canada is largely an application of clauses from the TPP (that included Canada, Mexico, and the US), a deal that Trump bitterly opposed and withdrew from in early 2017. More than two-thirds of the chapters of the new deal can be traced to the TPP, and almost all of the market access in the new deal was granted in the TPP as well. For US dairy exporters, the new NAFTA expands access to Canada’s dairy market by only 0.35% more than the TPP, while the dispute resolution mechanism and intellectual property chapters are largely carried over from the earlier trade deal. Similarly, the US-Mexico deal would at a maximum affect $10 billion in Mexican auto exports, while the TPP actually opened up market access for $90 billion in US auto exports. As a result, this deal can largely be seen as a re-application of the already negotiated TPP, but with less ambitious liberalization that does less for US exporters. While the TPP reduced tariffs on 18,000 US products and simplified regulatory barriers in dozens of industries, this deal mostly affects only the dairy and auto industries.

Overall, therefore, NAFTA 2.0 is largely the same as NAFTA 1.0 and the TPP that re-negotiated it. This stands in significant contrast to the explosive rhetoric used by Trump (i.e. threatening to tariff Canada’s auto exports at a 25% rate and calling NAFTA “the worst deal ever made”). Why then would Trump agree to it? For one, Trump himself doesn’t care about the specifics of trade deals as long as he’s able to claim them as a “win.” But secondly, Trump and his advisors must have realized that his trade policy is enacting devastating consequences on farmers and manufacturers across the country, and is widely unpopular especially in important midterm battlegrounds like Iowa and Kansas. Facing this pressure and worried about a blue wave in November, he may have been willing to cut his losses and simply embellish whatever deal he could get.

Daily Trade Polling Update

A few weeks ago, Simon wrote a memo outlining the current state of polling on Trump’s tariffs and trade policy more generally. We have decided to turn this into a live document that will be updated as new polls come out. Feel free to come back and check the most recent polling on this important issue.

This Daily Trade Polling Update is part of a new series produced by NDN challenging Trump’s tariffs.

National Polling

Free trade continues to remain remarkably popular in national polling. The August NBC/WSJ poll (pp 20) asked “In general, do you think that free trade between the United States and foreign countries has helped the United States, has hurt the United States, or has not made much of a difference either way?” 50% said helped, only 23% said hurt. A September Pew poll found similar numbers with 74% saying that trade with other countries is good for the US, compared to only 21% who said it was bad. A June Monmouth poll found 52% believing free trade agreements between the US and other countries were good for the US, only 14% disagreed. Finally, a September poll from the Chicago Council found that the highest percentages ever registered in the survey (since 2004) say that trade is good for the US economy (82%), good for consumers like you (85%), and good for creating jobs in the U.S. (67%).

In addition, Trump’s protectionist trade policies are widely unpopular nationwide. The July NBC/WSJ poll asked about Trump’s tariffs — 25% said they would help the economy, 49% said hurt. An August Monmouth poll found that 38% thought Trump’s tariffs would hurt the economy, compared to 28% who thought it would help it. An August poll from ABC/Washington Post found a similar 41/50 split on Trump’s tariffs. In an April Quinnipiac poll, a whopping 68% said a trade war with China would be bad for the US economy. Only 22% said good. A June Suffolk poll found only 35% support for the NAFTA renegotiation, and a June CBS poll found support for tariffs on Canada to be only 27% (62% disapprove). In a June CNN poll, 63% said it was better for the US to maintain relations with our close allies rather than impose tariffs. Only 25% said tariffs were better. Finally, the September Chicago Council poll found support for NAFTA at its highest level yet (63%), and a majority (61%) supports US participation in the revised Pacific trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Seven in ten are concerned that a trade war with China will hurt their local economy; while just over half are concerned about the impact of a trade war with Mexico.

In polls which broke out the numbers by party, an overwhelming majority of Democrats come out in favor of free trade and against tariffs. In the April Pew poll, 67% of Democrats said free trade was a good thing, just 19% said bad. 63% opposed the tariffs, just 22% supported. Furthermore, in the August ABC/Washington Post poll, which found support of Trump’s tariffs to be at 41% support/50% opposed, Democrats opposed them 75% to 18%.

State Polling

Polling of individual states has found a remarkably similar pro-trade trend, particularly in the Rust Belt that supposedly opposed globalization the most.  A series of Marist/NBC polls found support of the tariffs to be 23/42 in IL, 29/41 in MO, 28/46 in PA and 33/40 in Texas (links here and here). A recent Suffolk University poll (pp 22–23) of Wisconsin found support for the tariffs on China to be 39/47, and on “EU, Canada and Mexico” 31/57. That the popularity of a major Trump policy initiative is under 33% in states like Missouri, Pennsylvania and Texas is pretty remarkable.

House Polling

Trump’s tariffs are also significantly underwater in some of the most heavily-contested House districts ahead of the midterm elections, using data from the New York Times’ live polling project. In Iowa’s 1st district (which went Republican by 7.6 points in 2016), support for NAFTA is at 59%, compared to only 29% in opposition. Further, 55% oppose Trump’s steel and aluminum tariffs, compared to 36% in support. In California’s 49th district (R+0.6 in 2016), 63% support NAFTA and 22% oppose, while 53% oppose the steel and aluminum tariffs and only 33% support them. In Texas’ 32nd district (which didn’t even have a Democratic House candidate in 2016), 61% support NAFTA compared to 28% who oppose it, while 50% oppose the steel and aluminum tariffs and only 39% support them. Finally, in Kansas’ 3rd district (R+10.7 in 2016), 60% support NAFTA and 27% oppose it, while 56% oppose the steel/aluminum tariffs and 34% support them.

In each of these districts, furthermore, significant opposition to Trump’s trade policies has accompanied a large shift towards the Democratic candidate. While each district voted Republican in 2016, Democrats leads by 15 points in Iowa 1, 10 points in California 49, and 8 points in Kansas 3, and trail by 1 point in Texas 32.

Support for Open Trade Remains Robust in Recent Polling. Trump’s Tariffs Still Remarkably Unpopular.

This is the fifth article in a series produced by NDN challenging Trump’s tariffs.

Given the conventional wisdom about how Trump won the Presidency in 2016, one would expect to find broad support for his protectionist trade policies and his tariffs in particular. A review of recent polling, however, suggests the American people are far more supportive of open trade policies and less supportive of tariffs than many would have expected. In fact, by some measures, Trump’s tariffs are among the least popular policy initiatives of his Presidency.

Using the Polling Report site as reference, let’s look at some data. The August NBC/WSJ poll asked “In general, do you think that free trade between the United States and foreign countries has helped the United States, has hurt the United States, or has not made much of a difference either way?” 50% said helped, only 23% said hurt. A July version of that poll asked about Trump’s tariffs — 25% said they would help the economy, 49% said hurt. An April Pew poll found similar numbers with 56% saying free trade was a good thing for the US and only 30% saying it was bad. A June Monmouth poll found 52% believing free trade agreements between the US and other countries were good for the US, only 14% disagreed. A March edition of the NBC/WSJ poll asked the question a slightly different way: “What do you think foreign trade means for America? Do you see foreign trade more as an opportunity for economic growth through increased U.S. exports, or a threat to the economy from foreign imports?” 66% said opportunity for growth, only 20% said threat.

Summer polls from Pew and Quinnipiac found slightly better but still net negative spreads for Trump on tariffs and free trade (39/50, 40/49). The new ABC/Washington Post poll out this week found a similar 41/50 split on Trump’s tariffs. In the Quinnipiac poll, however, a whopping 73% said a trade war would be bad for the US economy. Only 17% said good. A June Suffolk poll found only 35% support for the NAFTA renegotiation, and a June CBS poll found support for tariffs on Canada to be only 27% (62% disapprove). In a June CNN poll, 63% said it was better for the US to maintain relations with our close allies rather than impose tariffs. Only 25% said tariffs were better.

In polls which broke out the numbers by party, an overwhelming majority of Democrats come out in favor of free trade and against tariffs. Two examples. In the spring Pew poll, 67% of Democrats said free trade was a good thing, just 19% said bad. 63% opposed the tariffs, just 22% supported. In the new ABC/Washington Post poll, which found support of Trump’s tariffs to be at 41% support/50% opposed, Democrats opposed them 75% to 18%.

Recent state polls have similar findings. A series of Marist/NBC polls found support of the tariffs to be 23/42 in IL, 29/41 in MO, 28/46 in PA and 33/40 in Texas (links here and here). A recent Suffolk University poll (pp 22–23) of Wisconsin found support for the tariffs on China to be 39/47, and on “EU, Canada and Mexico” 31/57. That the popularity of a major Trump policy initiative is under 33% in states like Missouri, Pennsylvania and Texas is pretty remarkable.

While trade is obviously a complicated and tough issue, the idea that there is broad support in the US for protectionist policies, and tariffs in particular, just can’t be supported given this data. Trump has failed to persuade the American people to get behind his trade wars, and in fact, the Pew data suggests more people today are supporting the basic notion that free trade is good than a year ago. Early in his Presidency, Trump’s trade policies have generated more of a backlash than a groundswell of support.

As we’ve written elsewhere, Democrats would be smart to study this data and do some polling and market research of their own. Putting it all together suggests that an extended campaign by Democrats calling on Trump to rescind his tariffs — like the one NDN has been calling for — would not only be smart policy and good for the US economy, but smart politics too.

Update, 9/6/18 — new poll from Chicago Council found even higher levels of support for trade and NAFTA. A summary of its key findings:

  • The highest percentages ever registered in this survey (since 2004) say that trade is good for the US economy (82%), good for consumers like you (85%), and good for creating jobs in the U.S. (67%).
  • Support for NAFTA is also at its highest level yet (63%), and a majority (61%) supports US participation in the revised Pacific trade agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
  • Democrats express the most favorable views of these two trade agreements, while majorities of Independents now also support them. Although Republicans as a group tend to oppose them, a majority of non-Trump Republicans — those with only a somewhat favorable or an unfavorable view of the president — support them, demonstrating splits within the party faithful.
  • Seven in ten are concerned that a trade war with China will hurt their local economy; while just over half are concerned about the impact of a trade war with Mexico. In both cases, trade wars are a greater concern for Democrats.

Whatever Happens With Mexico, Trump’s Trade Policies Are Harmful And Need To Be More Aggressively Challenged

(This is the fourth essay in a series challenging Trump’s tariffs)

Trump’s trade policy has been centered on a simple trade-off for American workers – experience some hardship in the short-term in return for expanded opportunity in the long-term. So far, the President has kept his promise on the first of those items, as American farmers and manufacturers have been hit hard by retaliatory tariffs, increasingly costly production inputs, and weaker investment into the country. The promised long-term benefits, however, appear as elusive as ever. The three major trade negotiations with the EU, Canada/Mexico, and China have delivered little in the way of solid agreements, and actually serve as a retreat from the more ambitious trade liberalization of the TPP and TTIP talks. Furthermore, American workers are likely to permanently lose many of their foreign consumer bases if the trade policy remains in place, regardless of the results of the trade negotiations. While American workers are struggling today, they are likely to become internationally uncompetitive in the future if Congress doesn’t act to reject Trump’s trade policy.

Trade negotiations have produced little of consequence

Trump’s trade negotiations on three fronts have led to minimal, if any, steps towards increased trade liberalization and US access to foreign export markets. Of the three trade deals, the Trump administration has made the most “progress” in the NAFTA re-negotiations with Mexico and Canada, but even here a binding deal has not been made and the future of the preliminary agreement between Mexico and the US announced earlier this week seems in doubt. This is because Canada, despite the statements from the President, needs to ratify any deal for it to have a chance of success. First, Mexico has stated that they want Canadian involvement for any new deal to go through, and indeed, the optics of the current Mexican president (whose PRI party undoubtedly wants to remain politically competitive after he leaves office) bowing to Trump’s bullying while Canada resists would be politically devastating in a country heavily opposed to Trump. Second, a bilateral deal excluding Canada would almost certainly fail in Congress, as it would represent a significant imposition of tariffs on America’s closest ally and trade partner and would destroy millions of American jobs. As a result, the fact that Canada has not been part of the negotiations since July 1st, and would need to ratify all changes by this Friday in order to pass a deal before the December 1st inauguration of Mexico’s new president, puts a re-negotiation in doubt. Furthermore, significant differences on revisions to the trade deal still exist between Canada and the US, such as an American demand to loosen rules for enacting anti-dumping subsidies and strengthened intellectual property protections. This, combined with enormous Canadian public opposition to Trump, makes a quick concession by Canada this week unlikely, putting the entire negotiations at risk.

Even if a deal were to pass in the spirit of the Mexico-US preliminary deal, however, the long-term gains would be less than those of the TPP (which included Canada, Mexico, and the US) that Trump dismantled when he entered office. In terms of tariff liberalization, the TPP eliminated tariffs on 18,000 products worth $90 billion in US exports, whereas the Mexico-US deal does little to change tariff policy. Furthermore, the environmental, labor, and IP protections of the TPP all are stronger than those in this NAFTA deal. Indeed, the major change in the new deal from the original NAFTA agreement is a revision to the Rules of Origin provision, which under the new deal would require imported goods to have a greater amount of North American-produced content. Importantly, this provision isn’t liberalization at all, but instead acts to increase the cost of imported goods in an identical way as a tariff would. Furthermore, this provision would impose significant costs onto foreign producers, who would likely exit the NAFTA import rules and simply accept a 2.5% MFN import tariff instead. Finally, it is unclear how impactful this change in auto rules would even be for the US economy. One Bloomberg report argues that only 3 car models out of the 40 currently exported from Mexico to the US would be affected by the increase in North American content requirement, and less than one-third of cars exported from Mexico to the US would be affected by changes to wage requirements. What does this new deal, that has a questionable chance of being ratified in the first place, actually do then? It enacts liberalization that is far less ambitious than the TPP, and its major revision actually imposes additional barriers on foreign trade with the US. Further, some reports suggest that the US is requesting use of Section 232 (national security) tariffs on Mexican autos if they don’t meet the new requirements, rather than the existing 2.5% MFN rate. This arbitrary, illegal use of Presidential power would further weaken the global trading system, and our relations with Mexico, and must be knocked out as negotiations proceed.

Negotiations on NAFTA have been slow and likely counterproductive to trade liberalization, but those with the EU have been even more stagnant. After meeting with European Commission President Juncker on July 25, Trump was quick to announce that the EU had made major trade concessions and that a deal was imminent. Instead, it turned out that the EU had simply agreed to begin talks on tariff reduction, something that had already begun under the TTIP framework that Trump dismantled when he took office. Furthermore, the very next day, the EU clarified that agricultural protection would be off the table, stymieing a major goal of the negotiations. While discussions between the EU and US on trade have been intermittent since, talks have not begun and no European concessions have been made. In addition, the significant unpopularity of Trump in Europe has reduced the political capital available to European leaders to accept a deal with the US, further harming the likelihood of an agreement being enacted.

Finally, trade negotiations with China have been largely non-existent since the trade wars began. Instead, there has been a continuing tit-for-tat of increased US tariffs leading to larger Chinese retaliation over the past month, with Trump on August 2nd discussing the idea of increasing tariffs on $200 billion of Chinese goods to 25%. Furthermore, the Chinese yuan has depreciated almost 6% against the dollar in 2018 as a result of trade war fears and increasing interest rates in the US, making Chinese imports to the US even more competitive against US produced goods. For real negotiations to even begin, this escalation must stop, but both sides don’t seem willing to back down. Further, China is unlikely to take steps to either appreciate their currency or reduce domestic protection, because both steps would risk creating dangerous imbalances in the Chinese economy (for example, the depreciation of the yuan is largely a market-based reaction to tightening US interest rates rather than Chinese government intervention) and would demonstrate international political weakness unacceptable to the Chinese government.

More than two months after Trump implemented his tariffs as leverage to revise trade deals, each of his negotiations has barely begun, if at all. Indeed, for the EU, Canada, and Mexico, Trump’s negotiations have accomplished less ambitious liberalization than the TPP and TTIP that he dismantled upon coming into office. The promised long-term benefits, therefore, have failed to materialize for American farmers and manufacturers. Indeed, they face harmful long term headwinds that threaten their international competitiveness over the long term.

Damage to the economy will be long term

First, Trump’s trade policy has put the foreign consumer bases of American exporters at risk. Many US industries rely on exports to foreign markets as a key source of demand for their products. Over 36% of US agricultural revenue comes from exports, for example, and Canada, China, and Mexico are the top 3 export markets for American farmers, representing over $60 billion in US production. Maintaining access to these markets, therefore, is critical to the long term success of American workers. However, Trump’s tariffs have put this success at risk. When competing for foreign consumers, existing producers have large incumbent advantages, because the trading infrastructure is already in place and is costly to change even if other low-cost alternatives exist. The US was in a good position before the tariffs, therefore, because switching to other farmers (e.g. Canada or Brazil) had certain large start-up costs.

Trump’s trade actions have significantly changed this, however, because American supply has been cut off to their foreign consumer bases by the retaliatory tariffs, forcing foreign consumers to go to other producers and giving them incumbent advantages over American farmers. Furthermore, US trade policy has been fundamentally delegitimized, because the US President supported by Congress and the Republican Party have themselves to be willing to implement broad-based tariffs at will. As a result, foreign consumers aren’t willing to risk an export disruption from US tariffs in the future, and instead will go to other producers even if more expensive. As a result, many foreign consumers of US products have said that they will not return to US producers, even after the trade war has ended.

Second, the Trump’s trade policy threatens to significantly weaken the efficacy of the World Trade Organization, which has been a critical actor in encouraging global trade liberalization. Since Trump enacted tariffs on steel and aluminum imports, seven countries including the EU, Canada, Mexico, and India have filed challenges at the WTO to the tariffs. They claim that the US tariffs are being used as “industry safeguard restrictions”, which were ruled in 2002 (against the Bush steel tariffs) to be an illegal use of trade policy. The Trump administration has countered that the tariffs are justified under national security grounds, but this is a laughable justification that can be quickly disproved. Furthermore, the primary precedent for WTO-approved national security tariffs involved those by the EU, US, and Canada against Argentina during the Falklands War. While those involved restrictions against an authoritarian military junta at war with the UK, Trump’s tariffs are against liberal democracies closely allied with the US. As a result, it is likely that many of those challenges to Trump’s tariffs will succeed at the WTO, putting Trump on a collision course with that institution.

While Bush quickly backed down in the face of WTO sanction in 2002 and rescinded his steel tariffs, Trump is likely to not back down, and indeed creating an excuse to exit the WTO may have been a goal of these tariffs in the first place. This type of action would have grievous long-term consequences for the US economy. Firstly, the inability of the WTO to oppose US protectionism would significantly weaken its efficacy with other member states, who would use the precedent to themselves not reduce their trade barriers. The WTO has been extremely good for the US in that it has encouraged countries to reduce their import tariffs to US goods, among others, and indeed the reduction in China’s average import tariff from 32% in 1992 to 4% today was largely due to the conditions required for Chinese WTO entry. Furthermore, if the US refused to accept a WTO ruling, it would likely lead to the WTO-backed imposition of considerable retaliatory tariffs by all WTO members. Chinese retaliation has affected $34 billion in US exports so far and has already caused a significant decline in US farmer and manufacturer revenue. As a result, if each WTO member were to impose retaliation, US exports could fall by hundreds of billions of dollars, with severe impacts on the US economy.

Trump’s trade policy threatens the long-term competitiveness of US workers and the global trading system as a whole, in addition to significant short-term costs to the US economy. And what has been achieved in return – no meaningful trade agreements with Canada, Mexico, the EU, or China, let alone major liberalizing concessions. Indeed, if Trump had simply continued to negotiate the TPP and TTIP treaties that he dismantled when he took office, the US would have made more progress on trade liberalization, without any of the costs to US workers. Congress must act to reject this failed trade policy this fall, before the damage done to American farmers and manufacturers, as well as the global trading order, is made permanent.

Trump’s Tariffs Will Do Lasting Economic Damage If Not Opposed

(This is the third essay in a series challenging Trump’s tariffs)

By: Chris Taylor

Much of Trump’s trade policy has been centered on his idea that trade wars are easy to win and will lead to quick re-negotiations of trade agreements. In his mind, therefore, the use of false justifications to sidestep Congressional oversight and a refusal to engage in real economic analysis would not be a problem, because the tariffs would be quickly and painlessly rescinded once the trade agreements were revised. Two months into the trade war, however, the opposite has come true. Our trading partners have not come to the table, but instead have imposed painful retaliatory tariffs on US industries already reeling from higher import prices. With no end in sight, Trump’s tariffs have done significant damage to the economic health of the country, and they threaten to permanently harm the competitiveness of American workers.

First, Trump’s tariffs have harmed industries that rely on imported products, predominately steel and aluminum, as inputs for their own products. Heavy manufacturing companies, such as equipment producers Caterpillar and John Deere, have reported a drop in earnings of almost 10% since the tariffs took effect, as steel is the industries’ largest raw material cost and Trump’s tariffs have increased its price by 25%. Small manufacturing businesses have felt the largest negative impact, because they don’t have the economies of scale to cushion a significant increase in costs. Lawn equipment producers in Indiana have been forced to cut 40% of their workers, nail manufacturers in Missouri have axed 15% of their workforce, and television-manufacturers in South Carolina have closed their plants. The construction industry, which employs over 7 million mostly blue collar workers, has in particular been harmed by Trump’s trade wars. Tariffs on steel and aluminum alone are estimated to cause the loss of 28,000 construction jobs as the raw materials and heavy equipment used in the construction process have become significantly more expensive. All told, the non-partisan Trade Partnership group estimates that Trump’s $22 billion in steel and aluminum tariffs alone will cause a loss of 179,000 jobs in manufacturing and services, far outpacing the estimated 33,000 job increase in steel and aluminum production.   

Second, Trump’s tariffs have led to the imposition of retaliatory tariffs on US exports by China, Canada, and the European Union. The agricultural industry, whose exports are heavily affected by Chinese demand, has been hit particularly hard, with the prices received by American farmers for soybeans falling over 16% to decade-long lows and prices for hogs and corn falling by 15%. In Iowa alone, farmers could lose $630 million as a result of losing export access to foreign markets if Trump’s tariffs stay in place. Trump himself has conceded that his tariffs are harming agriculture, which led him to provide a $12 billion bailout to struggling farmers. Even this significant amount (over $14 for every $100 of imports affected by the tariffs) isn’t enough to stop the damage from reciprocal tariffs, however. The US Chamber of Commerce estimates that bailouts to cover losses from retaliatory tariffs for all US industries would require an additional $27.2 billion in funding, of which $7.6 billion would affect automobile manufacturers and $9.6 billion other manufacturing industries. Rather than save US manufacturing, the trade wars are destroying jobs and creating bailout-dependent industries.

Finally, Trump’s tariffs are having a significant impact in an area often missed in the political discourse: business investment. For investors at home and abroad trying to invest their capital, the loss of export access for US industries and the extremely volatile policy environment in Washington has acted as a severe roadblock to investment in new factories and infrastructure. Net foreign direct investment (the level of investment coming into the country minus the level leaving the country) fell by 37% from the first quarter of 2017 to the first quarter of 2018. From January to May 2018, Chinese net investment in the US was actually negative $7.8 billion, meaning that more investment funds left the US than entered, in the midst of a 90% drop in Chinese investment into the US in 2018.

It is abundantly clear that Trump’s tariffs have been damaging for the US economy: fewer jobs, struggling companies that require government bailouts, and an exodus of investment spending. This lack of economic success mirrors the difficulty that the Trump administration has had in keeping its promises of an economic “revival” for the economy as a whole. In the 18 months since Trump became President, 300,000 fewer jobs were created than in President Obama’s last 18 months in office. Even worse, real average wages declined by 0.2% from July 2017 to July 2018, weakening Trump’s claim that his $1.9 trillion tax cut would help the middle class.

In particular, President Trump was elected to office on a message of creating economic opportunities for those left behind by this new age of globalization. By most metrics, however, he has failed to meaningfully improve the living standards of these “forgotten Americans”. In fact, from July 2017 to July 2018, 35.4% of counties that voted for Trump in 2016 actually lost jobs on net, compared to only 19.2% of counties that voted for Clinton. Trump’s tariffs have further harmed the economic opportunities of these people who most supported the president. In the Rust Belt, manufacturers from the auto to the household appliance industries have lost significant consumer bases and earnings, forcing them to lay off thousands of workers, while farmers across the Midwest are seeing their profit margins turn negative as prices for their crops plummet. The hardest hit groups haven’t been white-collar workers in coastal cities, but instead manufacturing, construction, and agricultural workers in states that voted for Trump.

Furthermore, the effects of the trade wars won’t go away anytime soon, even if the tariffs are rescinded. Domestic manufacturers and farmers have seen their export consumer bases eroded by cheaper foreign competition as a result of the tariffs (for example, Brazilian and Canadian soy bean exports to China that aren’t subject to reciprocal tariffs). These consumer bases take decades to build up, and their loss means that even when the tariffs are rescinded, US workers will have less access to foreign export markets for years to come, if at all. Indeed, Chinese officials have begun to say that American agricultural exports will be fully replaced by other countries’ exports, even after the tariffs are rescinded.

The first and second essays in this series argued that Trump’s tariffs were illegal and based upon utter ignorance by the President. Beyond that, the tariffs are enacting large costs onto average American workers, particularly those that were promised better economic opportunities by Trump during the 2016 election.  Congress must act to rescind these tariffs, before US manufacturers and farmers permanently lose out on the 86% of global demand that is outside of the United States.

On tariffs, Trump’s reckless ignorance can no longer go unchallenged

(This is the second essay in a series challenging Trump’s tariffs)

Presidents make decisions of global importance that affect millions of lives. As a result, they are expected to know something of the substance of their preferred policies, or at least be reasonably well-informed by their advisors. On trade issues, Trump is the opposite of this. He is misinformed on a level unprecedented for a President on any topic, let alone one that affects over 20% of the US economy and about which he is enormously far from the expert consensus. Imagine if President Obama, when negotiating the Iran deal in 2015, continually referred to Iran as Iraq or argued that the deal was necessary to prevent Iranian conventional weapon build-up even though the treaty dealt with nuclear proliferation. This is the level of ignorance that Trump displays, in tweets and speeches, on an almost daily basis on trade issues.

First, Trump continually argues that revenue from the tariffs he has imposed will play an important role in paying down the national debt. On Sunday, he tweeted, “Because of Tariffs we will be able to start paying down large amounts of the $21 Trillion in debt that has been accumulated.”  This is a truly astounding claim. Trump has so far imposed tariffs on $85 billion of foreign imports at an average rate of 25%, meaning that the tariffs will provide $21 billion in additional revenue, or 0.1% of the country’s $15.7 trillion publically-held debt. When you subtract the $12 billion in aid to tariff-hit farmers, Trump’s tariffs this year will be able to pay off only 0.06% of the national debt. For context, this revenue is equivalent to 1/200th of the revenue lost as a result of his tax cut bill.

Second, Trump constantly argues that other countries are taking advantage of the US and our “uniquely” open trade laws, implying that other countries provide much more unfair protection to their economies than the US does. Another brazen mistruth. According to the World Bank, the European Union imposes an average tariff of 1.96% compared to one of 1.69% in the US, hardly a significant difference. Further, both Canada and Australia, countries targeted by Trump’s steel and aluminum tariffs, impose average tariffs lower than the US average. But even this doesn’t do Trump’s lie justice. Tariffs play only a small part in trade disputes among advanced economies today, with non-tariff barriers such as subsidies and buy-local provisions also serving to protect domestic economies. According to the Heritage Foundation, hardly an anti-Trump group, the EU and Canada both have higher (less protectionist) “trade freedom” scores than the US, when taking both tariffs and non-tariff barriers into account.

Third, Trump likes to argue that the US trade deficit means that the country is “losing” money to other countries, tweeting last month that “we are the “piggy bank” that’s being robbed” and “lost $817 billion on trade last year”. This is perhaps the most basic of trade economics mistakes and one that is taught to every Econ 101 college class. The trade deficit has little to do with competitiveness or tariff levels, but instead reflects the level of saving and investment in a country. Investment levels in the US are higher than national savings, forcing us to borrow investment funding from abroad which, in turn, is financed through foreign imports. In effect, we are running a trade deficit in return for higher levels of domestic investment. As a result, while our multilateral trade deficit is almost 2.9% of GDP, our capital account surplus (the level of investment coming into the US minus the level going out) is definitionally also 2.9% of GDP, with no “loss” of wealth by either the US or other countries.

It is clear that Trump has no clue what he is talking about when he loudly proclaims that his trade wars will pay off the national debt or that the US is losing a lump sum of wealth each year through trade deficits. But this ignorance is more sinister and worrying than commonly understood. Trump’s trade wars are not only hurting American workers and consumers, but also are corroding the American-led international order. America’s democratic allies, especially in Europe, are finding it politically destructive to support the President on anything given his abysmal standing amongst their home voters. As a result, Trump has no political capital to accomplish any of America’s foreign policy goals, from a new Iran deal to negotiating revised trade agreements. History shows us that long sustained fights over tariffs can lead to a collapse in international diplomacy and greater conflict between nations (take the Smoot-Hawley tariffs in 1930 for instance), and Trump will continue to push the US down this road as long as he chooses to live in a make-believe world on trade.

The first essay in this series argued that Congress must take action to rescind Trump’s tariffs because they are illegal. Even further, Congress must step in because Trump has shown himself to fundamentally misunderstand the issues at stake. This is not an honest error, that can be fixed by surrounding the President with better people. Trump has many advisors who care deeply about free trade, such as former National Economic Council Director Gary Cohn (who likely lost his job due to trade disagreements with the President) and current NEC Chairman Larry Kudlow. They have explained the nuances of trade deals to Trump many times and shown him that his tweet tirades about tariffs are patently untrue. And yet Trump doesn’t care. He would rather live in his own make-believe world, and create real policy from these fake beliefs, than actually care about the many genuine economic issues facing Americans. A President that cannot be bothered to learn any semblance of the truth cannot be trusted to act in the best interests of Americans, on trade and much else. When they re-enter session this fall, Congress has an obligation to put pressure on the President to rescind these tariffs that are both illegal and wreaking havoc on the world America created.  

Trump's Tariffs Are Illegal, And Should Be Rescinded

In March, the Trump administration imposed tariffs on steel and aluminum imports from the EU, Canada, and Mexico, all without Congressional authorization. Trump was able to avoid such legislative oversight by invoking the National Security exemption within the Trade Expansion Act of 1962, which allows the President to unilaterally impose tariffs if imports are “in such quantities or under such circumstances as to threaten or impair national security.” For the tariffs to be legal under US law then, they have to satisfy the criteria that they are protecting national security. Unfortunately for Trump, this justification is incredibly difficult to believe, to the point of absurdity.

First, the tariffs are levied on close allies, most of whom are obligated by treaty to defend the United States in times of military conflict, and who would clearly be willing to continue trading with the US if the country’s national security was at risk. Canadian and European soldiers are currently fighting alongside Americans in Iraq, Syria, Mali, and Afghanistan, making the idea that they represent security threats to the US outlandish.

Second, even Trump’s Department of Defense doesn’t believe the tariffs are necessary for national security. When asked earlier in the year, Defense Secretary James Mattis explained that “the U.S. military requirements for steel and aluminum each represent only about 3% of U.S. production. Therefore, DoD does not believe that the findings in the reports impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.” Trump himself justified the tariffs on grounds irrelevant to national security, tweeting that the tariffs “are in response to [Canadian tariffs] of 270% on dairy!”

Third, in trade “talks” with the EU, Trump said he was willing to reduce tariffs on EU goods (and has since put a halt to their implementation) if the EU also agreed to reduce their trade barriers on agricultural products and LNG. These concessions are not related to national security, nor do they affect the steel and aluminum industries, and yet Trump is willing to remove tariffs that are supposedly “critical” to US national security to gain them. It’s hard to see how important the tariffs actually are to our security if they are only being used as a bargaining chip for completely unrelated trade efforts.

Finally, and most strikingly, the tariffs would actually do a poor job of defending US national security if steel and aluminum imports were a legitimate national security threat. While the tariffs theoretically would increase domestic production if imports were suddenly cut off, the key raw materials necessary for production (for example, bauxite for aluminum) are almost entirely imported and are unaffected by Trump’s tariffs. If, somehow, NATO turned on the US, they simply could embargo bauxite (of which America’s entire supply is imported) and effectively shut down US aluminum production, regardless of the tariffs currently imposed.

It is abundantly clear that the tariffs aren’t justified on national security grounds, but instead are a way to subvert Congress’ oversight role to achieve Trump’s domestic political goal of protection for favored industries. This is a blatant abuse of executive power that has real consequences for Americans. Trade policy is complex and affects nearly everyone in the country, and as a result the country’s representatives must have a say in whether to undertake such policies. Furthermore, this type of trade policy would effectively destroy the rules-based WTO system if adopted globally. If Trump can make up reasons to enact trade barriers against foreign imports at will, other countries will do the same against US exports, reducing US wages and jobs in the very manufacturing industries Trump is trying to protect.

More nefariously, Trump’s trade war ignores existing law to get around the checks and balances of the legislative branch. If the precedent is set that Trump can make up national security “emergencies” to justify his preferred policies, there is no telling where it would end. What is to stop Trump from creating another false emergency, and using it as he sees fit? Leaders on both sides of the aisle, regardless of their ideological position on the economics of trade, must stand up to Trump’s creeping authoritarianism and take back the oversight role for which Congress was created.

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