Tariffs Are the Wrong Way to Fight Unfair Trade Practices

As is the case on so many issues, President Trump has sounded schizophrenic on trade. While he took a hardline protectionist stance during the presidential campaign and for much of his first year in office, he and several of officials of his administration have signaled in recent months that they were rethinking their hostility toward multilateral approaches to trade problems. But Trump’s recent declaration that he plans to impose steep tariffs on the imports of steel and aluminum coupled with yesterday’s announcement by Gary Cohn, the president’s chief economic adviser and a free trader, that he’s quitting, suggest that Trump’s protectionist side is dominating once again. This is a reason for concern because tariffs and protectionism in general won’t do anything to address a major underlying cause of distortions in global trade: the subsides of China and other countries for their state-owned enterprises (SOEs). Those subsidies stimulate excess production, depress market prices, and enable SOE-produced products to capture market share beyond accepted norms of competition. Given that only 2% of U.S. steel imports come from China and U.S. aluminum imports account for only 1.4% of China’s aluminum production, the tariffs will neither reduce China’s global exports of these metals nor constrain its SOEs.