Commentary: Trump Steel and Aluminium Tariffs

Tariffs are a form of protectionism, but if a nation is struggling with foreign countries dumping their products on the domestic market, then protectionism is justified to an extent.  The word “tariff” is a bad word to economist because it implies higher domestic consumer prices.  In other words, why pay higher prices for domestic goods when we can get them more cheaply from foreign nations – economic efficiency.  Other catch phrases are “comparative advantage”, “free market”, and “self interest”.

Dumping, a foreign nation selling steel in America for a price that is less than the price that its own citizens pay, is unfair; and goes against market efficiency.  There must be a “level playing field”.  Judging from the news published on the internet, no one seems to be disputing the claim that China is dumping steel in the USA.

Tariff gets its bad reputation from the days of the “robber barons”:  monopolies of the late 1800’s in American markets like oil, steel, coal, and beef.  Back then Andrew Carnegie and John Rockefeller destroyed many companies and lives with predatory pricing and kick backs called “rebates”.  The well known economist John Hobson describes this in his book “The Evolution of Modern Capitalism:  A Study of Machine Production”, published in 1906:

There are four principal reasons why the Trust or close combination, with monopoly, assumes greater prominence in the United States than in England and elsewhere.

First: the railroad as an economic factor is more important than elsewhere, and is able to render more assistance to mining, manufacturing, or commercial combinations.

Secondly: the tariff, by securing to American producers the home market, renders profitable combinations more feasible than in a country of free imports.  Moreover, in none of the protective countries of Europe have the great manufacturing interests obtained so exclusive a control over the tariff policy as in the United States.

Thirdly: the corrupt domination of politics by business interests, stronger in the United States than in any great industrial nation of Europe, enables the great railroad and business corporations to procure municipal and state charters and other profitable privileges, to override many laws with impunity, and to avoid their fair share of contribution to the public purse.

Fourthly: the greater absorption of the national energy in business operations, the greater field of selection for ability, the greater equality of opportunity to rise, the sanguine and audacious temperament of the American business man, coupled with freedom from many of the legal or customary restraints which hamper the “logical” evolution of capitalistic enterprise in Europe, have evolved a type of industrial and financial “hustler” with bigger ideas and more rapid and unscrupulous modes of realising them than is found in Europe.

Protectionism and tariffs will be great for American iron and aluminium.  However, Trump should consider what that protectionism could lead to regarding monopolies and going back to the “bad ole days” of the late 1800’s.  Hobson went on to say in his book that it was the use of tariffs in the 1800’s that made America an industrial giant because its industries were protected from foreign competition.  Perhaps  Trump should consider raising the tariffs so that the price paid in China for steel is the price that is paid in the USA.  Now that is a level playing field worth considering.

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