The tariffs on foreign steel and aluminum President Trump announced Thursday are a necessary opening move in a game that will take years to play out, but which America cannot safely delay any longer.
President Trump is absolutely correct that this is a national security issue. A nation simply cannot remain a superpower without producing industrial metals like steel and aluminum. And more tellingly, the United States cannot count on the reliability of foreign supplies, or even accessing them, in wartime.
Opponents of the tariffs have characterized it as the opening salvo in a trade war. But unless the world’s decision-makers become radically more stupid overnight, it will not spiral uncontrollably into a global trade collapse.
History does show, however, that trade conflicts are often ongoing, even under supposedly free-trade regimes. The steel and aluminum tariffs dispute will likely differ only in scale from previous conflicts – like those with Japan in the 1980s that eventually led to the revaluation of the yen in the Plaza Accord.
President Trump’s imposition of tariffs is definitely a jolt to a complacent global trading system. The current charade of international free trade is underwritten by the willingness of the United States to absorb the net surpluses of all the world’s mercantilist powers, to the tune of half a trillion dollars a year. This is destined to fall apart at some point, and better sooner than later.
Will foreign nations retaliate? For sure, and there will be reverberations for years to come as the global trading system works out its trading imbalances – and not just in the U.S. – in a diverse range of goods. This situation will take years of moves and counter-moves to play itself out.
For America to rebalance trade, our strategy needs to rely on four elements:
- Use of tariffs on foreign nations to force them to open their markets to our goods.
- Revaluation of the dollar, by means of policies like a proposed Market Access Charge, to a trade-balancing level.
- Use of tariffs on foreign nations to relocate back to the U.S. the production of more of the goods Americans consume.
- An industrial policy that not only focuses on trade but also includes government-funded development of the pre-commercial stages of future technologies – a necessary effort to position America as a nation with high-value goods to export.
Relying on any one of these strategies alone would be insufficient, though a better start than doing nothing. For example, the U.S. could eliminate the trade deficit solely by driving down the value of the dollar. But we do not want to simply sell low-value commodities while ignoring the chance to rebuild job-producing supply chains. A better approach for an America First trade and economic strategy is to utilize all four elements in concert. Recent experience has shown that merely out-innovating the world technologically while not securing our own and foreign markets for the products unfortunately results in those industries moving offshore.
The real test of the Trump administration on this issue is going to be in the follow-through. I believe that President Trump intends to continue, that this is not simply a flashy gesture intended to win votes or satisfy the president’s own emotional impulses. But in the bigger picture, America’s future prosperity depends on such a robust approach to correcting failed trade policies.
Note: Ian Fletcher is the author of “Free Trade Doesn’t Work: What Should Replace It and Why.”