A new administration brings new economic policies and an opportunity to assess those of the previous administration. Looking back to President Trump’s “American carnage” inaugural speech, this was a clear statement of economic nationalism as a policy position.
Trump stated that “we’ve enriched foreign industry at the expense of American industry,” and “we’ve made other countries rich while the wealth, strength, and confidence of our country has disappeared over the horizon.” The suggestion was that this was taking place via factories “leaving our shores.”
The “America First” agenda laid out in that speech was as follows: “We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.” The main economic theme was the two “simple rules,” namely “Buy American and Hire American.” Left out of this caricature was the fact that it was mainly U.S. companies (including Trump supporters) that were involved in moving jobs overseas.
The Trump administration’s economic nationalism began with steel and aluminum. When he was a presidential candidate, Trump already had the U.S. steel sector in mind. At a campaign stop in Pittsburgh, he stated: “Today I am going to talk about how to make America wealthy again. We are going to put American-produced steel back into the backbone of our country. This alone will create massive numbers of jobs.” However, the idea of the steel sector creating a “massive” number of jobs was a fantasy.
Even scrolling back to 1990, metals manufacturing in the United State accounted for less than one percent of total U.S. employment. By 2020, metals manufacturing accounted for one-quarter of one percent of total U.S. employment, with the steel sector at one-fifth of one percent. Creating a “massive” number of jobs out of this sector was always like the prospect of balancing a basketball on a marble. It was not going to happen.
Nonetheless, in 2018, the Trump administration increased tariffs on steel imports by 25 percent and on aluminum imports by 10 percent. Certain countries were exempt, including Canada and Mexico, but the Trump administration later reimposed the tariffs on Canada more than once, significantly alienating a long-term ally. In an historical aberration, these tariffs were imposed under Section 232 of the 1962 Trade Expansion Act, the national security provision.
Awkwardly, even the U.S. Department of Defense was not convinced of the national security argument, noting that it required only 3 percent of total U.S. metals production for national security purposes. Equally awkward given Trump’s obsession with China, China’s steel exports were largely unaffected because antidumping and countervailing duties had already been placed on them.
The Trump administration went even farther, defining national security in terms of economic security. This is exactly what previous administrations had avoided because it opens the door for other countries to do the same. The European Union, Canada, Mexico, Japan, South Korea and Turkey all objected to the national security arguments and retaliated. But a door has been opened that will hurt the United States in the long run as our adversaries copy this policy move.
There was also the matter of the economy-wide effects of protecting metals sectors. Steel and aluminum were an unfortunate focus point because they are intermediate inputs into so many other sectors. Protecting steel and aluminum raises their domestic prices and increases costs in these downstream sectors. This is the reason that most economic simulations of steel tariffs do not find any increase in overall employment and sometimes find an actual decrease.
Meanwhile, the Trump administration largely abandoned efforts to hold China accountable at the World Trade Organization. And its celebrated Phase-1 deal with China has largely fallen short of expectations. Meanwhile, the overall trade deficit has expanded (including with China), and service exports have declined where the United States has a significant comparative advantage.
In his inaugural speech, President Trump stated that: “The time for empty talk is over. Now arrives the hour of action.” Trump’s economic nationalism was largely empty talk. Where it involved action, it was the wrong kind. We need to remember this as we move into a new administration: Trump’s economic nationalism has been a bust. It is time for a new approach.
Kenneth A. Reinert is a professor of public policy at the Schar School of Policy and Government of George Mason University.