President Donald Trump, joined by U.S. Trade Representative Robert Lighthizer, left, signs Section 201 actions in the Oval Office of the White House in Washington, Tuesday, Jan. 23, 2018. Trump says he is imposing new tariffs to
President Donald Trump, joined by US Trade Representative Robert Lighthizer, signs the tariff actions he says will 'protect American jobs and American workers' © AP

As he signed orders imposing new tariffs on imports of solar cells and washing machines, President Donald Trump said on Tuesday that he had one major outcome in mind: "Our action today helps to create jobs in America for Americans.”

But Mr Trump, who is widely expected to sign off on more tariffs in the weeks to come as part of a crackdown on what he has declared to be China’s unfair trade practices, may not have been paying attention to the lessons of history.

Both of his immediate predecessors made similar tariff decisions early in their presidencies and came to regret them: Barack Obama with Chinese tyres and George W Bush with steel. Studies have shown they likely caused the loss of more jobs than they saved.

Both presidents also made the move only once. Rather than repeat it, they opted to follow a pattern that since the 1970s has seen US presidents become more reluctant to grant domestic companies the broad “safeguards” that Mr Trump did this week, largely because most economists say the collateral damage outweighs the benefits. 

“There are always unintended consequences,” said Raj Bhala, a former Federal Reserve Bank of New York attorney who now teaches international trade law at the University of Kansas. 

In the case of Mr Bush’s 2002 move to impose tariffs on steel imports, one estimate found that the resulting higher costs led to the loss of about 200,000 jobs — more people than were employed in the US steel industry as a whole — and $4bn in lost wages at smaller manufacturers that used steel.

Mr Obama’s 2009 decision to levy a tariff of up to 35 per cent on Chinese tyre imports helped save 1,200 jobs but at a cost of $900,000 each, the Peterson Institute for International Economics estimated in a 2012 study. It also caused the loss of more than 2,500 retail jobs due to higher prices, the authors found. 

Those cases illustrate why Mr Trump has quickly encountered a backlash to his move to impose tariffs, particularly in the solar sector. 

Solar industry groups argue that in the name of temporarily helping 1,000 workers employed by small foreign-owned but US-based manufacturers, Mr Trump is putting at risk more than 20,000 jobs in a thriving industry that has actually benefited from cheap imports. 

But history also points to why economists are worried about the potential impact of Mr Trump’s trade policies on the broader economy. 

While many of the concerns about Mr Trump’s promises of protectionism expressed by the International Monetary Fund and others have focused on fears that he might set off a destructive trade war with China, economists have also begun examining what a new wave of tariffs or other moves might mean for the US itself. 

Mr Trump and his supporters have argued that by talking tough on trade, he has been encouraging both US and foreign companies to invest more at home. 

The president on Tuesday pointed to decisions by South Korean companies LG and Samsung to move their production of washing machines to the US as evidence for the benefits of his tariff move, though both companies had decided to do so before domestic rival Whirlpool sought Washington’s help. 

Mr Trump has also played down the possibility of an economic conflict with China. “There won’t be a trade war,” he said on Tuesday. 

Administration officials have signalled that they are willing to absorb some short-term costs in return for taking on what they see as systemic and long-term concerns about the US’s trade position, particularly with China. 

Yet inside the administration some officials have also begun warning that if Mr Trump does not move carefully, he risks upending some of the economic gains he has delivered with tax cuts and deregulation, particularly if he follows through on his threat to leave a North American Free Trade Agreement he is now renegotiating with Canada and Mexico. 

Such concerns are shared by many economists. 

If, as many in Washington expect, Mr Trump in the weeks to come imposes tariffs on aluminium or steel imports in the name of US national security it will probably lead to higher domestic costs for steel users such as the automobile sector, Oxford Economics said in a recent report. 

Moreover, the steel industry represents just 2 per cent of US manufacturing and any benefits — other than political — would likely be imperceptible, the report argued. 

“By offering protection to US steel and aluminium producers, the US is effectively supporting a very small segment of manufacturing activity at a direct cost to other sectors that are arguably facing similar, if not more intense, competitive headwinds,” the Oxford Economics report’s authors wrote. That, they added, “runs counter to a [Trump] strategy to strengthen US manufacturing more broadly”. 


Get alerts on US trade when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article