Kudlow's Corner

Kudlow: Mr. President, tariffs are really tax hikes

Lawrence Kudlow, Arthur B. Laffer, and Stephen Moore
Key Points
  • President Trump genuinely believes that his steel and aluminum tariffs will save thousands of blue collar jobs.
  • Steel and aluminum may win in the short term, but steel and aluminim users and consumers will lose. In fact tariff hikes are really tax hikes, Larry Kudlow writes.
President Donald Trump addresses a news conference in the East Room of the White House in Washington, DC.
Kevin Lamarque | Reuters

One of the ironies of trade protectionism is that tariffs and import quotas are what we do to ourselves in times of peace what foreign nations do to u‎s with blockades to keep imports from entering our country in times of war.

Or consider that we impose sanctions on U.S. enemies such as North Korea, Russia and Iran because we want them to feel the economic pain of being deprived of imports. But now we are imposing sanctions on our own country by punishing with tariffs in order to make Americans more prosperous. If ever there were a crisis of logic, this is it.

President Trump genuinely believes that his steel and aluminum tariffs will save thousands of blue collar jobs. And we know from our interactions with him that he truly cares about these workers in Pennsylvania, Ohio and other rust belt states.

The American people do as well, and we don't want factories to shut down. But even if tariffs save every one of the 140,000 or so steel jobs in America, it puts at risk 5 million manufacturing and related jobs in industries that use steel. These producers now have to compete in hyper-competitive international markets using steel that is 20 percent above the world price and aluminum that is 7 to 10 percent above the price paid by our foreign rivals.

In other words, steel and aluminum may win in the short term, but steel and aluminum users and consumers will lose. In fact, tariff hikes are really tax hikes.

‎ Some of those 5 million jobs will be put in harm's way. And if they sell less to foreigners, the trade deficit goes up, not down.

Since so many of the things Americans consumers buy today are made of steel or aluminum, a 25 percent tariff will likely get passed on to consumers at the cash register. This is a regressive tax on low-income families.

Commerce Secretary Wilbur Ross holds up a Campbell's Soup and Budweiser cans commenting on the US aluminum and steel tariff trade policy.

Trump should also examine the historical record on tariffs, because they have almost never worked as intended and almost always deliver an unhappy ending.

The Smoot-Hawley Tariff Act of 1930 signed into law by Republican President Herbert Hoover gave us, and worsened, the Great Depression.

Richard Nixon's 10 percent import surcharge contributed to the stagflation of the 1970s.

George W. Bush tried to save the steel industry by imposing tariffs on steel and If those tariffs worked, we wouldn't be having this discussion today. ‎We tried to save the color TV industry with protectionist measures and instead they wiped out the domestic production.

We aren't persuaded by the Trump administration claim that we need to impose these tariffs for national security reasons. Despite stiff competition from imports, many specialty steel producers are doing just fine and actually exporting steel to Mexico and Canada.

Meanwhile, Canada is the number one exporter of steel to the United States. Does anyone really believe Canada is a national security threat to the U.S.?

What does worry us that Canada and Mexico are now both threatening retaliatory tariffs against America. This tit-for-tat trade breakdown could put NAFTA in serious jeopardy. That could inflict severe economic damage to all three nations, and a stock market meltdown.

Trump should continue to make American producers more competitive in global markets through tax, regulatory, energy, and other pro-America policy changes that bring jobs and capital back to the United States. That is happening at a furious pace right now as Trump has made America almost overnight the best and most reliable place in the world to invest. Steel and aluminum import tariffs work decisively against this goal.

Ronald Reagan in the 1980s invoked anti-dumping provisions against Japanese steel. It was one of his few decisions he later confessed he wishes he hadn't made. ‎Trump will come to learn the same thing, and we hope it is sooner, not later.

Kudlow, Laffer and Moore are cofounders of the Committee to Unleash Prosperity. They served as economic advisors to the Trump campaign.

Commentary by Larry Kudlow, a senior contributor at CNBC and economics editor of the National Review. Follow him on Twitter @Larry_Kudlow.