How Special Interests Hide the True Costs of Tariffs

Our system is designed to make it almost impossible to consider the domestic collateral damage of trade sanctions.

By Veronique de Rugy of Mercatus.

Excerpts:

"However, while it has the data, the Department of Commerce is not required by law to consider the impact on the industries in the cross hairs of a tariff in its recommendation to impose the penalty — even though the impact can be brutal.

For example, for the projected impact of the steel tariffs, numbers produced by the Commerce Department show that they may increase employment in the metals industry by 14,000 jobs. But the report also says that a significantly larger number of jobs will be destroyed, as a result of these tariffs, in industries downstream from metal production.

One of the dozens of such industries is construction, where 16,000 jobs alone are projected to disappear. This explains why over 20,000 heartbreaking requests for exemption from the steel tariffs have already been filed by American firms, all begging their own government to stop hurting them.

Under the current system, if Commerce Secretary Wilbur Ross decides to protect his friends and business interests in the steel industry, he can ignore the damage that his own data show the tariffs will inflict on some of the 6.5 million workers in America’s steel-consuming industries. His sole lawful obligation is to demonstrate that the economic fortunes of the 140,000 steel employees will be promoted by the tariffs. (The same story — available data on negative downstream effects ignored by the administration — applies to the tariffs on Chinese goods.)

Even worse is the legislatively required bias that the United States International Trade Commission must exercise against American consumers of imports when deciding whether or not to impose duties on foreign producers accused of selling their goods for less than they should or selling unduly subsidized products. These trade remedies are called antidumping, and countervailing duties and deciding whether or not to impose them is a core function of the I.T.C. As my colleague Christine McDaniel, a trade economist and former adviser to the I.T.C. chairman, and I exposed in a recent paper published by the Mercatus Center, when I.T.C. commissioners make their determinations in such cases, they’re actually forbidden by statute from considering the impact of these so-called trade remedies on downstream industries — those consumers of goods and services hit by the tariffs.

To understand just how lopsided the process is, look at the tariffs imposed by the Commerce Department in March on Canadian newsprint paper. An American company, North Pacific Paper Company, complained to the Commerce Department that Canadian manufacturers were harming their business by selling newsprint at noncompetitively low prices. The reality is that the general shift to digital platforms is the main cause of declining demand for newsprint. 

That case in now before the I.T.C. (which will render its decision today). Unfortunately, in making their decision about whether to uphold the tariffs to protect the 34 employees of North Pacific Paper, the commissioners are not allowed to consider the damage that this domestic trade remedy would wreak on the 600,000 people employed throughout the American publishing industry. The law forbids it."