Comparing the Bush and Trump Tariffs
John Kahn, Dartmouth Business Journal
On March 1st, 2018 President Donald Trump signed two proclamations imposing a 25 percent tariff on steel and a 10 percent tariff on aluminum that have become subject to much public debate. “I’m defending America’s national security by placing tariffs on foreign imports of steel and aluminum,” he said, finally fulfilling one of his campaign promises to aid the American steel industry.
This is not the first time that the domestic steel industry has received protection through tariffs and trade regulations. In 2002, President George W. Bush imposed similar tariffs on imported steel, a controversial decision met by public outcry from those who advocated for free trade. The economic impact of these trade policies does not bode well for the future of the Trump economy. Despite their intentions, studies show that Bush’s trade policies were largely detrimental to the national economy, suggesting a similar path for Trump’s tariffs.
Despite the administration’s support for free trade, the Bush administration justified the steel tariffs in 2002 as a necessary measure to protect against dumping practices. After the International Trade Commission, a U.S. agency, concluded that the European Union (EU) had been flooding and endangering the American steel industry, Bush swiftly authorized plans to impose tariffs on EU and East Asian steel. Bush hiked the tariff on foreign steel up to 30 percent, which had previously ranged from zero to one percent.
Politics also influenced Bush’s decision to impose tariffs. According to a study on the consequences of the 2002 tariffs, one of Bush’s primary campaign promises was to protect the steel industry, gaining him much support from steel-producing swing states like Pennsylvania, Ohio, and West Virginia. Fulfilling these promises became paramount for the Bush administration who sought reelection in just a few years. The culmination of economic and political factors resulted in tariffs that were swiftly announced and imposed in March.
The economic retaliation by the EU was detrimental to the American manufacturing industry and economy as a whole. Within months of the tariff, the World Trade Organization had deemed Bush’s tariffs to be illegal, permitting the EU to set $1 to $4 billion worth of its own tariffs and sanctions in response. This sparked an international trade war leading to major steel shortages within America, which according to Trade Partnership Worldwide, increased steel prices up to 38 percent within eight months. These volatile price hikes had collateral effects on the manufacturing industry: automobile and appliance companies now faced rising production costs along with shortages on steel. Companies across most American industries now needed to cut down on costs and did so largely at the expense of their workers. By March of 2002, every state within America had experienced job loss from higher steel prices, leading to a roughly $4 billion decrease in wages. “We found there were 10 times as many people in steel-using industries as there were in steel-producing industries,” said Tennessee Senator Lamar Alexander. “They lost more jobs than exist in the steel industry.”
The culmination of economic and political pressures eventually pushed Bush to reverse the sanctions just over a year after they were imposed. Having targeted various American exports, the EU began targeting specific industries that would directly hurt Bush’s hopes for his 2004 reelection. For example, the EU threatened to place high tariffs on oranges from Florida and cars produced in Michigan, an attempt to inflict significant damage on Bush’s campaign for reelection. By late 2003, Bush finally lifted the tariffs.
The motivations behind the economic sanctions that Trump has signed are eerily similar to those of Bush. Both presidents have justified their tariffs by declaring a clear opposition, the EU for Bush and China for Trump. Similar political key words such as“safeguard” or “protection” have been used to support these tariffs. A significant portion of Trump’s supporters come from these steel-heavy states like Pennsylvania, one of the major swing states that Trump won. Very similar political and economic factors appear to have pushed both presidents to support tariffs on the steel industry.
There are also several parallels between the economic details and circumstances of Trump and Bush’s overall plans. Trump has signed off on imposing a 25 percent tariff on all steel imports, a number just shy of the 30 percent tariff that Bush had implemented. The steel industry has remained a declining sector in the American economy since 2002. A recent study by the Organization for Economic Co-operation and Development, or OECD, described the global steel industry as “weaker than it has been in years” and that most governmental policies have failed to promote short to medium-term sustainability. Though China has now emerged as the key player for steel exports rather than the EU, the overall macroeconomic conditions of the industry itself have not changed significantly.
Advocates of Trump’s sanctions have argued that several differences between the two plans make the Trump’s tariffs more likely to succeed. Both sides of the political spectrum have noted the vagueness of Trump’s executive order, particularly to which countries the tariffs will apply. The current executive order exempts “friendly nations” from the sanctions without much clarification which countries would fall under such category. Supporters of these sanctions view this vagueness as a way of insuring greater flexibility and leniency. By having these loopholes and potential exemptions, Trump can pick and choose which countries fall under the “friendly” category. It should also be noted that Bush’s tariffs, though stringent in the beginning, ultimately succumbed to pressures for exemptions once the EU retaliated. Today, China has openly stated that they still expect these sanctions to apply to their steel industries. China has also been vocal about potential retaliation.
The Bush administration’s steel tariffs have been largely condemned by both Democrats and Republicans since their end in 2003. The economic retaliation and subsequent effects on the manufacturing industry have all pointed towards the necessity and benefits of free trade. Trump’s tariff plan appears to have many economic and political similarities to the Bush tariffs, suggesting a similar fate will befall the American economy within the coming years.