President Trump told business executives gathered at the White House Thursday that he would impose tariffs on steel and aluminum next week. “You’ll have protection for a long time in a while,” he said. “You’ll have to regrow your industries, that’s all I’m asking.”
The U.S. steel industry has long awaited the move from Trump, but trade policy experts warn the tariff could do more harm than good. And they only need to point to a tariff imposed by President George W. Bush in 2002 to show why.
Despite promising a free trade agenda and stocking his administration with supporters of free trade, Bush enacted a tariff of 8% to 30% on foreign steel arguing that the U.S. steel industry was hurt by a surge in imports from overseas. The Bush Administration knew the move would draw sharp critiques with U.S. Trade Representative Robert Zoellick telling TIME at the time that “the Europeans will scream.”
Nonetheless the Bush White House calculated that the benefits of helping steelworkers outweighed the cost of angering allies and potentially driving up the price of consumer goods. Bush had promised during his campaign to pay attention to the Rust Belt and a tariff was seen as a way of helping curry support with voters in the region.
But the imposition of tariffs set off a chain reaction. The European Union responded with tariffs of its own and a number of countries disputed the tariffs at the World Trade Organization. Less than a year after the announced tariffs, the WTO ultimately ruled that the U.S. had violated international trade agreements by imposing the tariffs, opening the door for sanctions and retaliation.
And, in fact, the European Union ended up hitting Bush where it hurt. The bloc planned tariffs on a wide range of products, including many produced in key swing states where job losses could hurt Bush’s chances of re-election. In late 2003, Bush reversed the sanctions in a move that would be branded as a flip flop.
Trump is setting himself for a similar confrontation. Other countries have already suggested that they may retaliate if Trump goes through with the tariffs. Among the potential targets are Harley Davidson motorcycles, made in Speaker of the House Paul Ryan’s backyard, and bourbon made in Senate Majority Leader Mitch McConnell’s home state. (Many Republicans on Capitol Hill have already spoken out against the tariffs).
Still, there are several key differences between Bush’s and Trump’s steel tariffs. Most significantly, Bush relied on a provision of U.S. law that required the Administration to show certain damage to U.S. industry from imports, but left the tariffs vulnerable to WTO scrutiny. The Trump Administration is instead citing a vague national security provision of trade policy that the WTO typically does not try to probe.
“This is the golden loophole,” says Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, a Washington think tank. “Each country is entitled to define national security as it sees fit.”
If the U.S. uses a broad interpretation of national security nothing will hold back others. And Trump may end up rethinking whether his tariffs on steel are worth duties on Florida oranges, Wisconsin Harleys and Kentucky bourbon.
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