Enforcement: The Forgotten Piece of U.S. Trade Policy
Through tariffs on imported steel and aluminum announced last week, President Trump may inadvertently begin to restore the balance we last saw in U.S. trade policy five decades ago.
When John F. Kennedy signed the Trade Expansion Act of 1962, he heaped praise upon AFL-CIO President George Meany for labor’s support of the sweeping trade law. It would be one of the final instances in which a president and unions stood together on trade policy, and with good reason.
The Trade Expansion Act laid out three goals: lower U.S. tariffs to expand trade, create a program of training and adjustment for trade-impacted workers, and safeguard domestic industry from import threats. The implementation of the law managed to cut tariffs, and we have followed through on that through successive Democratic and Republican administrations.
But the other two goals have foundered. Trade adjustment for workers, known as TAA, is mostly used as a political tool to garner support for controversial trade agreements, while the program itself faces severe budgetary and programmatic limitations. Trade-impacted workers are unlikely to ever find a better job than the one they lost, and a significant number will never work full time again.
The law’s safeguarding tools, meanwhile, are only selectively employed. President Reagan, often cited by Trump, occasionally took them up – on motorcycles, semiconductors, automobiles, currency exchanges, and steel – but he also had politics in mind; Congress typically wanted to go further than Reagan was willing to go. Presidents Bush and Obama invoked them at times, too, but our wariness has effectively relegated them the back bench of our trade policy.
Until the last election cycle. In 2016, trade became a tipping point. By then a third of the country’s manufacturing jobs had vanished in little more than a decade, and a growing body of evidence is showing that Chinese imports were the primary cause.
Voters perceived they were getting a raw deal on trade, and the candidates responded. Pushed by Bernie Sanders, Hillary Clinton distanced herself from the neo-liberal trade philosophy of Barack Obama and Bill Clinton, while Donald Trump stood Republican trade orthodoxy on its head and swept a field of mostly free-trading rivals.
Yet the first 13 months of Trump’s presidency have produced more bluster than policy rearrangement. The proposed Trans-Pacific Partnership was shelved, but it wouldn’t have passed Congress. The North American Free Trade Agreement is under renegotiation, but it hasn’t been scrapped. China hasn’t been named a currency manipulator, as the president promised, nor has it been penalized for its widespread trade cheating. The administration has adjudicated trade cases and imposed tariffs in a manner hardly distinguishable from the Obama administration, which also imposed tariffs on solar panels and washing machines (albeit less expansively).
Now however, the president seems poised to restore the last leg of the American trade policy imagined by JFK: proactive trade enforcement. Trump is starting with the steel and aluminum industries. The U.S. economy has been motoring along the past four years, but these have been lagging.
Not because they are inefficient; they are, in fact, among the most productive in the world. They are instead industries that have been victimized by the Chinese government’s disinterest in reining in its massive overcapacity in these sectors. Chinese overproduction, led by its state-dominated steel companies, floods competing markets directly and indirectly – and that includes our own. The United States imports more steel than any other nation, while our mills operate at only about 75 percent of their capacity.
We are absorbing that overcapacity. Because of that, steelworkers operate under regular threat that their jobs might not be there within a year. In comes Trump with a proposal to invoke Section 232 of the Trade Expansion Act, which has been dusted off and utilized to propose significant tariffs on imported steel and aluminum that threaten national security. Those tariffs would in fact bring back steel jobs, as the president brashly promises.
The economy-wide shock many have predicted is wildly overblown. American business is profitable, flexible, and adaptable to changing market conditions. And when prices for steel have dropped in the past, businesses have chosen to keep most of those savings, rather than passing them along to consumers.
Those businesses can make the same choice now. But we will all be better off if Beijing’s market-distorting practices are quarantined, and that starts with the president’s proposals.
Elite consensus loves to wax nostalgic about the free-trade credentials of Kennedy Democrats and to wonder why public support for such an unfettered strategy is consistently lacking. But they fail to recall that adjustment and enforcement must accompany expansion. While President Trump’s commitment to ensuring trade-impacted workers get back on their feet is far from certain, one thing is not: It’s stunning that it took someone like Donald Trump to remind us what a more complete trade policy looks like.