Diagnosis for Democracy
Insights into the State of Our Union
A Blog by Rob Tenery, MD


The Art of the Compromise

By Rob Tenery, MD on June 11, 2018

The United States has had a trade deficit since 1975 and it’s currently the world’s largest. In March 2018, President Trump announced he would impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum. The United States could make almost everything it needs, but some countries can make products just as well for a lower price.

Most of the trading partners that the United States have deficits which fall into two categories. The two largest are China and Japan. Some of the largest deficits are with countries in the smaller category that include Canada, Mexico, and Germany.

The countries with which the United States has the largest trade deficits in goods are not always its most important trading partners: China - $636 billion traded with a $375 billion deficit, Canada - $582 billion traded with an $18 billion deficit, Mexico - $557 billion traded with a $71 billion deficit, Japan - $204 billion traded with a $69 billion deficit and Germany - $171 billion traded with a $65 billion deficit.*

Fearing destabilizing trade wars, many lawmakers are opposed to Trump’s tariffs. So are America's allies, especially Canada and Europe. Trump says he is doing this to fulfill a campaign promise to blue-collar workers that he would bring back good jobs. Some US aluminum and steel industry executives plan to start hiring for jobs as soon as Trump signs the paperwork.

When the tariffs go into effect, every foreign company that sends steel and aluminum to the United States, including Canadian firms, would be forced to pay a 25 percent tariff on steel and a 10 percent tariff on aluminum.

The move is a political and economic gamble for Trump and the GOP. If it backfires, Americans could face higher prices on everything from cars to microwaves. The US economy could sputter, hurting Republicans' chances in the midterms and Trump's in 2020. But if he manages to bring back a lot of steel jobs, he could be an even bigger hero to some blue-collar workers.**

Century Aluminum chief executive Michael Bless told The Washington Post that the company would immediately expand U.S. production once the tariff goes into effect. The United States has gone from having 23 aluminum smelters in 1993 to just five today, and not all of the remaining ones are operating at full capacity. The Commerce Department reports 90 percent of the aluminum about 30 percent of the steel used in America annually comes from overseas. According to the Commerce Department, the United States employed 216,400 steelworkers in 1998. That number fell by about a third to 139,800 in 2016. The aluminum-related jobs were 13,000 in 2013 has now fallen to about 5,000.

Higher prices of the domestically made steel and aluminum would mean more profits for these companies.

A former professor at the University of California at Irvine’s business school, Peter Navarro, believes strongly in tariffs. He argues that the United States needs to hit back forcefully. Few economists and business leaders agree, including at the conservative-leaning American Enterprise Institute. “It’s really important to understand that the impact of these tariffs from a macroeconomic point of view are zero,” Navarro said. He appears to have won over the one person who matters: the President.

A few Democrats from Rust Belt states like Sen. Joe Manchin III of West Virginia and Sen. Robert P. Casey Jr. of Pennsylvania have been pushing for Trump to prop-up the domestic steel and aluminum industries. Manchin said, “I like where the President is going on this”.**

Canada is the largest source of foreign steel (16%) and aluminum (40%) coming into the United States. Trump left the G-7 summit in disarray when Canada’s Prime Minister Justin Trudeau reneged on a joint communiqué. "He really kinda stabbed us in the back," top US economic advisor Larry Kudlow said of Trudeau on CNN's State of the Union. "He did a great disservice to the whole G7. We went through it. We agreed. We compromised on the communiqué. We joined the communiqué in good faith.”

One of the top targets is likely to be US agriculture. Farmers have been lobbying the White House to keep NAFTA and other trade agreements in place. China is the world's top soybean buyer, for example, and Canada imports about $25 billlion worth of agriculture products every year from the United States.**

America has been the leader of the global free trade movement for decades. Trump's tariffs, especially with Canada, threaten to set up the potential for trade wars in 2018. He’s following his premise he has outlined in his famous book. In reality, the book title should have been titled, The Art of the Compromise.

 *   KIMBERLY AMADEO, The Balance May 10, 2018

**  Heather Long The Washington Post March 6, 2018





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