Following Up: More on the Trump Tariffs

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aluminum, Australia, Canada, David J. Lynch, Defense Department, defense manufacturing base, downstream industries, European Union, Following Up, George W. Bush, Gordon Hanson, James Mattis, Kentucky, manufacturing, Mitch McConnell, multiplier, Paul Krugman, Paul Ryan, steel, steel-consuming industries, tariffs, terrorism, The New York Times, Trade, Trump, U.S. Business and Industry Council, United Kingdom, Washington Post, Wisconsin

I could spend all day today rebutting ignorant, biased, and simply inane commentary on President Trump’s Thursday announcement that stiff tariffs will be imposed on U.S. imports of steel and aluminum (along with watching the plethora of college hoops on TV today!). Instead, I’ll offer some follow-on thoughts to the tariff talking points I posted yesterday.

>The European Union in particular seems outraged by the Trump decision, and has threatened to retaliate with tariffs on its own on a wide range of products, including some from Wisconsin and Kentucky. These of course happen to be the home states of House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. It’s an understandable, and certainly clever, impulse, and in 2003, something like it succeeded in convincing former President George W. Bush to lift steel tariffs he had imposed 18 months earlier.

Of course, Bush 43 was no Trump. He was a committed free trader and globalist, and/or agent of of America’s powerful corporate offshoring lobby. But here’s something that needs to be considered by Messrs Ryan, McConnell, and other lawmakers at whom the Europeans or other powers may take aim: What if, shortly after September 11, Osama Bin Laden had threatened to destroy major targets in their home states or districts unless the United States withdrew militarily from Afghanistan and left him alone. Would the affected legislators have run to the White House to plead for an abandonment in the war on terror? Not likely.

I know that war and economics are different (although given the importance of economic strength as a source of military strength and overall national success, the similarities and overlap are widely overlooked). But don’t doubt for a minute that American politicians’ reactions to these European threats will be watched closely in all the world’s capitals, and that signs of weakness will be factored into foreign decisions to abide by or violate current trade agreements at the U.S.’ expense, or take other measures to gain advantage in their own, American, or third-country markets that clash with free market and free trade norms.

So here’s hoping that American Members of Congress and Senators will show some backbone, and make clear to the nation’s trade partners that they won’t permit themselves and the country at large to be hanged separately.

>Speaking of hanging separately, quite naturally, U.S. steel- and aluminum-consuming industries are concerned that their global competitiveness will be harmed if they’re forced to use more domestic metal in their products. They need to keep two considerations in mind. First, if foreign governments are permitted by Washington’s inaction to dump major American industries like aluminum and steel out of existence, consuming sectors would be next in line. 

Second, there is indeed no inherent reason to make the consuming industries pay any penalty at all. When I was at the U.S. Business and Industry Council, which represented many steel-consuming companies and industry groups, we persuaded them that the best solution would be tariff protection for them as well. The tariff complaints coming from such sectors today reveals that the Trump administration hasn’t put this possibility on the table. That’s a major missed opportunity, and the President should realize that such offers not only can build support for the steel and aluminum tariffs. They can also expand the constituency for broader America First trade policies. (New Trump statements on possible auto tariffs make clear exactly the types of steps needed, although as is usually the case, they work best when applied across-the-board.)   

>Speaking of missed opportunities, here’s another (big) one – the handling of some allied countries’ indignation about being treated as threats to America’s national security because of their steel and/or aluminum shipments. In several major cases, these complaints could have been prevented had the administration recognized that Australia, Canada, and the United Kingdom are defined by American law as part of the nation’s defense “technology and industrial base.”

I’m not necessarily a supporter of this policy, but since it exists, these countries have an entirely legitimate point regarding their possible inclusion in the metals’ tariff regime. And the Trump administration should have explained to them that they were of course being exempted. Moreover, the Defense Department should have told the rest of the administration about the legal and legislative situation. Yet Pentagon chief James Mattis’ memo to his administration colleagues outlining his department’s position on the tariffs never mentioned it.

Not that these allied countries are entirely blameless for the row. They could have raised the issue when the prospect of sweeping U.S. tariffs was first raised. But all indications are that they preferred to grandstand.

>As should now be expected, the media coverage of the tariff controversy has often veered off into economics and policy La-La Land. Two of the funniest examples I’ve seen so far (and they’re nearly identical): criticizing the announced tariffs because they only boast the potential of bringing back high-value manufacturing to the United States instead of lots of industrial jobs.

Think I’m kidding? Here’s Washington Post correspondent David J. Lynch: “If tariffs prompt companies to move production back to the United States, they would likely opt for highly automated plants that require fewer workers. Trump’s tariffs ‘would bring back 21st-century factories where we lost 20th-century factories,” [economist Gordon] Hanson said this week at the National Association for Business Economics conference in Washington.”

Here’s no less than Nobel Prize-winning economist and New York Times columnist Paul M. Krugman: “[T]he tariffs now being proposed would boost capital-intensive industries that employ relatively few workers per dollar of sales; these tariffs would, if anything, further tilt the distribution of income against labor.”

What both authors are somehow missing is how manufacturing is valuable for much more than high wage employment. It’s long been the nation’s leader in productivity growth. It generates nearly 69 percent of private sector American spending on research and development. And don’t forget its high employment and output multipliers – which mean that each dollar of manufacturing output punches far above its weight in generation production and jobs elsewhere in the economy.

That last point is particularly relevant to Krugman’s claim about labor’s low share of national incomes. The manufacturing employment multiplier tells us that adding to industry in America – including capital-intensive industry – will promote employment in related sectors like logistics, plus revitalize the retail and other service sectors of the towns and cities and counties where the new factories are built. Those jobs may not pay as well as the manufacturing jobs lost. But they’re sure better than the economic death that often results when communities lose their factories.

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Our So-Called Foreign Policy: Why America’s Alliance Strategy Can’t Have it All

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alliances, allies, burden sharing, China, defense spending, Financial Times, Germany, James Mattis, Japan, NATO, North Atlantic treaty Organization, North Korea, nuclear war, Our So-Called Foreign Policy, Russia, smothering, South Korea, Trump

Decades ago (literally!) I came up with an insight that’s stood the test of time pretty well. When my main professional focus was American foreign policy, I began realizing that the best way to describe the U.S. approach to its major security alliances with East Asian and European countries was to call it a “smothering strategy.” That is, American leaders were trying not only to protect Japan and Western Europe specifically from communist aggression. They were also trying to make sure that those critical regions never exploded into major war again – and principally, that Germany and Japan never resumed their roles as aggressors.

The characteristic U.S. solution? Washington would try to smother these German and Japanese impulses by removing their need to conduct any kind of independent foreign policies of their own in the first place. That’s why the United States pledged to take care of both their national security interests (with dangerous nuclear defense commitments) and their economic interests (by opening its economy much wider to their exports than vice versa). As a result, for decades, Germans (and other Europeans) and Japanese could avoid the expenses of maintaining big military establishments and concentrate tightly on the peacetime pursuits of life, liberty, the pursuit of happiness – not to mention building great wealth.

How good was this insight? To me, the proof of the pudding was America’s determination to preserve these alliances almost unchanged even after the Cold War ended, the Soviet Union disappeared, and China had not yet launched a drive to boost its influence in East Asia. To put it bluntly, U.S. leaders were still terrified that, if they were forced to face the world on their own once more, the Germans and Japanese would go bonkers again.

But this past week came some evidence that the smothering strategy is still firmly in place – despite the election of an American President who has complained loudly as a candidate as well as in office about how these arrangements are inexcusable rip-offs of the American public and especially taxpayers. At a big national security conference held each year in Germany, Trump administration officials expressed alarm at the prospect that some European initiatives to boost military spending that have barely advanced past the talking stage could might result in European forces at least sometime operating independently of their alliance with the United States – the North Atlantic Treaty Organization (NATO) – and even excluding America.

According to a Financial Times account of the meeting, U.S. Defense Secretary James Mattis reacted by insisting that these European Union “defence plans…enhance Nato’s common defence rather than detract from it. And he put down an important marker: there was, he said, a clear understanding that common defence is a Nato mission that belongs to Nato ‘alone’.”

In other words, the Trump administration has now fallen into both of the traps that ensnared U.S. alliance policy during the Cold War. It has assured the allies that its commitment to their defense is absolute – including the risk of fighting a nuclear war on their behalf – thereby gutting any incentives for them to stop “free riding” on the United States militarily and bearing a greater share of the defense burden. And it has made clear that, although it wants the allies to assume more responsibilities for their own defense, it opposes the allies gaining any more control over their own defense. Instead, the United States must remain firmly in charge.

As a foreign policy realist, who believes that national interests are much more important than particular alliances, and can clash with the preservation of these alliances, I don’t blame the Trump-ers for wanting to have their cake and eat it, too on this score – i.e., more allied resources to use as Washington wishes. Nor do I blame the Europeans for wanting as much defense assistance from Americans as they can get while continuing to skimp on their military budgets.

But as an American, I wish the administration would recognize two fatal flaws in this alliance strategy status quo. The first is the un-realism of straining to freeze alliance structures in place when the common enemy that represented their raison d’etre has been gone for nearly thirty years. The second entails the needless dangers created by continuing to provide nuclear guarantees – and the tripwire forces needed to draw it into Armageddon – for these allies when not even the partial revival of Russian and Chinese threats (along with North Korea’s development of ever more advanced nuclear weapons) has fostered consensus in how to handle them.

Of course, dissolving these alliances will entail risks. But the risks of trying to square these circles look far greater. And when considering the nuclear threats they now pose (from those North Korean as well as Chinese forces that are much more capable of credibly threatening the United States with nuclear attack, along with Russia’s Cold War holdover arsenal), they look harder to justify than ever.

(What’s Left of) Our Economy: Trade Policy Critics Need a Steeper Trump Learning Curve

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Alliance for American Manufacturing, alliances, allies, America First, China, globalism, James Mattis, national security, North Korea, overcapacity, Scott N. Paul, steel, tariffs, Trade, Trump, {What's Left of) Our Economy

In at least one major respect, it should be clear by now that the more things have changed in U.S. trade policy under President Trump, the more they’ve remained the same. Unfortunately, an otherwise fine op-ed in yesterday’s New York Times just revealed that this message hasn’t been received by some prominent supporters of trade policy overhaul.

The article, by Scott N. Paul of the Alliance for American Manufacturing, made all the standard (and in my view, very compelling) economic and domestic political arguments on behalf of imposing tariffs or quotas or both on U.S. imports of steel. (Full disclosure: I’ve worked informally with Paul’s organization for many years, though we’ve differed on tactics from time to time.)

And if Mr. Trump was focused like the proverbial laser beam on aiding important American industries besieged by predatory foreign trade practices, this piece surely would serve an important purpose – influencing fence-sitting Members of Congress and in the chattering classes, and even some opponents.

But Paul’s need to write this article in the first place, and especially to point out (correctly) that Trump trade curbs that were widely expected have now been delayed for months, shows that the main obstacles to these steel moves aren’t on Capitol Hill or in the think tanks and news media. They’re in the Trump administration itself. And the principal reason seems to be one that has shaped the trade policy debate for decades, and that has typically knee-capped reform efforts: national security.

It’s true that as both a candidate and as President, Mr. Trump has promised that the days of “globalist” decisions to prize foreign policy interests and especially smooth relations with America’s allies over domestic needs would end. His Inaugural Address memorably scored “a small group in our nation’s capital” for having

“enriched foreign industry at the expense of American industry; Subsidized the armies of other countries while allowing for the very sad depletion of our military…. defended other nation’s borders while refusing to defend our own; And spent trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay. We’ve made other countries rich while the wealth, strength, and confidence of our country has disappeared over the horizon.”

Nonetheless, according to all reports, top Trump administration national security aides, especially Defense Secretary James Mattis, have erected major roadblocks to turning this rhetoric into reality. The reason? Although China’s government-subsidized steel glut has attracted most of the attention, the proposed tariffs would hit steel shipments from many leading American allies. Their protests appear to bear out the U.S. steel industry’s contention that the Chinese steel that’s been flooding world markets has pressured other steel-producing countries to maximize their own imports – especially to the United States, whose market has remained generally open – and that in some cases, Chinese steel products are being re-exported to the United States as other types of products.

Nor is this the only instance of a Trump trade-foreign policy trade-off. The President has stated he’s postponed imposing other sanctions on China in order to persuade Beijing to crack down harder on North Korea for maintaining a nuclear weapons program.         

Unless American trade policy critics start addressing these considerations, they’re likely to extend a long string of policy defeats. Two counter-arguments are especially promising.

The first is that the general practice of buying and keeping allies’ (or other countries’) good will by turning the other cheek on trade policy is unnecessary. In all of these cases, the country in question faces far greater security threats than does the United States. Therefore, there’s no need to offer any inducements to accept American military protection, or to produce cooperation toward shared goals. And if these countries now believe they’re in the clear, security-wise, and can resist or ignore trade pressure from Washington with no damaging consequences, they’re not going to be very reliable allies or partners going forward.

The second, and overlapping, argument is that the by far best guarantors of America’s security and prosperity are the country’s own domestic capabilities, not alliances or any kinds of relationships with foreign countries. And as suggested above, this goes double for relationships with countries who seem to value their own tariffs and subsidies over military protection from the United States or objectives like eliminating North Korean nuclear weapons.

In other words, President Trump’s commitment to America First trade policies has been far from absolute. If trade policy critics want him to govern more along the lines of Candidate Trump, they’ll need to raise – and broaden – their game.

Im-Politic: Flynn & Abe Reveal the Price of a Thinly Staffed Trump Administration

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Defense Department, Gary Cohn, Im-Politic, James Mattis, Japan, Michael Flynn, National Economic Council, National Security Council, Shinzo Abe, Stephen Miller, Steve Bannon, Trade, Trump

During the last presidential campaign, the Mainstream Media ran so many stories about the Trump campaign being in various stages of “disarray” at various times that some skepticism was in order when such articles resumed popping up following Mr. Trump’s presidential victory and inauguration. In addition, I kept asking myself why any official with any loyalty to Mr. Trump would even speak with mainstream reporters like The New York Times‘ Maggie Haberman, who was so hostile to their boss for so long that she was considered a “surrogate” by top aides to candidate Trump’s main general election rival, Hillary Clinton.

At the same time, as so often remarked, running for office is hardly the same as serving in office, especially when the presidency is involved. And the resignation of an official so high level as national security adviser Michael Flynn after only about three weeks into an administration is a glaring sign that the president is well behind the curve in getting his organizational act together. Unless he raises his game dramatically very soon, his thick teflon coating could start wearing very thin, and even at this early stage, “failed presidency” claims will look disturbingly on target.

But even if the transition to a post-Flynn presidency goes relatively smoothly, and no other fiascoes break out, this latest episode vividly reminds of a big challenge President Trump will keep facing throughout his time in office, and one that I’m not totally confident he’ll solve in a satisfactory way.

Why not? Because he’s never had a large cadre of high-quality advisers capable of staffing even the very top levels of a new administration. Nor is one is likely to appear any time soon. For nationalist critics of recent American trade, broader globalization, and foreign policies have never attracted anywhere near the kind of funding that’s needed to create the kind of counter-establishment that can nurture a big enough core of knowledgeable specialists representing that perspective.

In fact, the nationalists’ performance stands in stark and sad contrast to that of other interests in years past. The leading example is mainstream conservatism – which recognized the need for such institutions to overthrow or at least modify what they saw as a dangerously liberal policy consensus reigning in Washington and in national politics during the post-New Deal decades.

As a result, if Mr. Trump is to halt an powerful downward spiral in his presidency, he may well need to rely even more heavily than at present on cabinet and key sub-cabinet and other aides who hold much more conventional views than his – and those of his base – on key issues like trade and immigration that largely vaulted him into the Oval Office. Just look at the president’s recent summit with Japanese Prime Minister Shinzo Abe for evidence of how this dilemma has already affected U.S. policy in ways that Trump backers can’t possibly support.

Precisely because Japan has been a leading predatory trading power for so long, its economy-wide trade barriers and other mercantile practices had drawn Mr. Trump’s ire during the campaign. In addition, Japan was (rightly) portrayed as a classic defense free-rider – a country that was able to skimp on its own military spending because of its guarantee of American protection. And candidate Trump went even further than most critics in questioning the bilateral security relationship, suggesting that because of the mounting nuclear threats from both China and North Korea, Washington’s decades-old promise to defend Japan against any and all attacks posed increasingly alarming nuclear risks to the United States.

Japan clearly was so worried about President Trump’s views that Abe rushed to the United States right after the November vote and became the first foreign leader to meet President-elect Trump in person. Abe’s trip last week, moreover, made him the second foreign leader to see President Trump in person once his term began. (Britain’s Theresa May was the first.)

Judging not only from the official record of the visit, but from the judgment of a group of Japan policy specialists that convened in Washington yesterday, Abe achieved both of his major objectives – and then some. President Trump pledged to continue the policy of defending Japan through thick and thin (“100 percent”), and Abe successfully deflected significant U.S. trade pressure – at least for the time being.

As made clear by Abe’s detailed and decisive statements during his visit, one main reason for his triumph was preparation – always an urgent necessity for Tokyo since, despite all the traditional American establishment boilerplate about interdependence, the United States has always been much more important to Japan than vice versa. But three other main reasons bring us back to the “Flynn problem.”

First, Abe plainly was able to fill a policy vacuum created both by the Trump administration’s growing pains and its thin staffing. Second, the American preparations made for the Abe meetings, including putting together briefing materials, were dominated by holdover bureaucrats who overwhelmingly support the longtime status quo in U.S.-Japan relations. And third, many of the top aides Trump has selected strongly support the status quo, too. These include Secretary of Defense James Mattis and National Economic Council Chair Gary Cohn. The former is general recently retired from an American military with a big vested psychological and bureaucratic stake in maintaining massive U.S. forward deployed forces in East Asia. The latter is a former senior executive at Wall Street mainstay Goldman Sachs.

Not that this kind of gloom and doom scenario (from a Trump-ian standpoint) is inevitable. Although high quality nationalist policy specialists are hardly abundant, they can be found. Moreover, it’s possible that President Trump could make clear to his more establishment-oriented advisers that he expects them to reflect his own iconoclastic leanings. In addition, aides that plainly represent his campaign positions (and of course contributed substantially to formulating them) could be given the whip hand bureaucratically, in order to drive this message home.

But of course this approach’s success will depend largely on the establishment figures following this lead – and not walking away from jobs that most of them plainly don’t need financially or or professionally. At the same time, even if Mr. Trump’s more conventionally minded advisers stay on in this atmosphere, would there be enough loyalists, and enough competent loyalists, to discipline them effectively? I don’t know if the aides most strongly supportive of the president’s vision, chiefly White House policy chief Stephen Miller, and chief strategist Steve Bannon, are grappling with these issues. I do know that they’ll need to if the Trump presidency is to achieve its promise.