Trump’s Tariff Travesty Will Not Re-Industrialize the US

Trump’s steel and aluminum tariffs will only make it more difficult for US producers that depend on these resources, while also initiating trade retaliation from trade partners says Michael Hudson

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SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore. The Organization for Economic Cooperation and Development, or known as the OECD, predicted on Tuesday that Trump’s tariffs on aluminum and steel imports could initiate a wave of protectionism and slow global economic growth. The tariffs have already spurred various countries to announce retaliatory measures. For example, the European Union plans to impose tariffs on Harley Davidsons and blue jeans. China has also promised to retaliate. Meanwhile, US companies that use steel and aluminum as raw materials for their production processes already report significant cost increases by as much as 40%.

Joining me now to analyze Trump’s tariffs is Michael Hudson. Michael is a distinguished research professor of economics at the University of Missouri- Kansas City. He’s the author of several books, the most recent among them is J is for Junk Economics. Michael, welcome back.

MICHAEL HUDSON: Great to be here again, Sharm.

SHARMINI PERIES: Michael, what do you think of Trump’s tariffs on aluminum and steel, will they protect US manufacturing industries?

MICHAEL HUDSON: Well, on the one hand, the pretense is that it’s supposed to protect US manufacturing and rebuild manufacturing. But in order to really rebuild manufacturing, you need much more than a tariff against foreign goods. You need, for one thing, public infrastructure, and that’s not going to happen. You need a different tax system, that’s not going to happen. You need a more competitive economy, that’s not going to happen. So, I think there’s not really any attempt to do what, in the old times, how America built up manufacturing by what Henry Clay called the American System in the 19th century, infrastructure, public investment. We’re still in a Thatcherite economic policy, so I think what Trump really wanted to do was simply a diplomatic leverage against Canada and Mexico.

I think what is on his mind is, “Well, we’ll let Mexican steel in, but it’ll have to build the wall and pay for it. If it doesn’t do that, then we’re going to punish it. For Canada, you’re going to have to just surrender to all of renegotiated NAFTA demands. You have to buy more American cars. You have to do whatever we tell you to, otherwise we’re going to create unemployment in your steel industry.” That’s called national security, somehow. It’s really not against national security if he’s willing to let in most of the aluminum and most of the steel, if they do things that have nothing to do with national security at all.

His whole policy is what we call an internal contradiction, that it doesn’t make sense. Canada has already announced that it is not going to renegotiate NAFTA and let the tariff be used in anything. The Canadians are sort of fed up with American pushing special interest favoritism against it, and obviously the Mexican president refused to come up a few weeks ago when it was obvious that Trump was going to make demands on Mexico that were so much against Mexican national interests that they just canceled.

SHARMINI PERIES: So, then why is US manufacturing, steel manufacturing in particular, predicting a 40% increase in prices?

MICHAEL HUDSON: It’s not a prediction, Sharmini. The Financial Times just had a chart, and steel prices, spot prices have already gone up 40%. Aluminum prices have already gone up one third. If you look at the spot market, the prices are already up. So, we don’t have to say this is a dire prediction, it’s already happening.

SHARMINI PERIES: Michael, historically tariffs and protectionist policies have been used by countries as a strategy to industrialize. Can this strategy work again in light of the fact that US has been de-industrializing for several decades now?

MICHAEL HUDSON: It can’t work again for a number of reasons. For one thing, from the very beginning of the 19th century, ever since Henry Clay put forth the American System in the 1840s of internal improvements, protective tariffs, and a national bank and financial policy to fund an industry, those three had to go together. In order to make industry competitive, you need not only tariffs to block imports, you need to support manufacturing by infrastructure investment, roads, canals, an educational system.

By the end of the 19th century, you had the Conservative Party in Britain, Benjamin Disraeli, saying, “Health. Health is everything. We have to have a health policy to promote our workforce.” In Germany, Bismarck said, “We need a pension system. We need an industrial banking system to fund Germany. We need government spending on infrastructure, on railroads.” You had a whole European, French, German, English, investment in public spending. But Trump is a Thatcherite. You cannot have a Thatcherite economy, which is basically an asset stripping economy. You cannot have a tax policy like Trump has, which is basically a financialization policy, and at the same time, have an industrial policy.

And in fact, what Trump is saying is that he wants this to be the first salvo in a trade war against the whole world that has a mixed economy. In other words, he’s announced pretty much that within the World Trade Organization, he’s going to promote blockages against any country where the government plays a role either in taxing companies, for instance, if they tax companies that pollute with a pollution tax, any government that regulates, any government that provides subsidized services like subsidized education, subsidized healthcare, subsidized roads and railroads, that this is somehow not a free market economy.

So, a free market economy is an austere economy sort of like Thatcherism. This aim is to dismantle industry and Trump is essentially saying, “Any economy that has an industrial strategy, we’re going to exclude from the American centered way of doing a society.” Basically, this is, either you’re going to be a neoliberal Thatcherite block or the rest is going to be a state socialist or other socialist or just plain mixed economy block. No other country outside of the neoliberal countries is going to say, “Okay. We’re going to privatize our education just like America’s doing. We’re not going to give free education or subsidized roads. We’re not going to regulate industry.” No country is going to go along with this attempt to essentially declare war on countries that are not free enterprise economies.

SHARMINI PERIES: Michael, legally, trade policies are supposed to be coordinated through Congress. However, Trump is sidelining Congress and saying that he has the right to negotiate and to do his wheeling and dealing from The White House. And we just saw a recent decision where he’s denied the $177 billion Broadcom takeover of Qualcomm, that he considers this a national security threat. We don’t know whether it is or not but let’s take it for granted that it is. This kind of wheeling and dealing and sidelining Congress, does that concern you?

MICHAEL HUDSON: Yes, for two reasons. Number one, it’s the imperial presidency. It’s an attack on the American Constitution. You’re right, Congress is supposed to be in charge of trade policy just as it’s supposed to be in charge of declaring war, but the president can say there’s a national security emergency. Now, ever since the World Trade Organization was created in the 1990s, no country, not even the United States, has used the national security excuse to do tariffs. George W. Bush thought about it but then he said there was just no basis for it.

But what’s most interesting in the Qualcomm case is the logic for national security. What Trump and the government said was the problem of letting Singapore take over Qualcomm is they’re financial people and finance lives in the short run. And if we let a financially organized company take over a technology, they’re going to cut back research and development and just bleed the company, and extract dividends. Well, that’s what finance is all about. That’s how hedge funds operate. That’s the Wall Street modus operandi.

So, what Trump has said that the way in which Wall Street behaves, the way in which the banking system behaves, is against national security. Well, that’s a wonderful argument that I think is worth following up, but the main violator of national security in this case would be financialization of the economy, Wall Street, it would be the hedge funds that are backing him. Yet at the same time, you have Trump working with the Blue Dogs in the Democratic Party, dismantling bank regulation, deregulating the banks, and making essentially it easier to oppose national security, which is supposed to be long term.

What also doesn’t make sense is national security has to be long term. If having a manufacturing and an industrial base is national security, then what you need to do is what every other government in the world, led by the United States above all, has done and have public investment and infrastructure, not privatized infrastructure, because public investment in infrastructure lowers the cost of roads and schooling and, as we’ve talked about on this show before.

Privatization aims at raising the price and extracting a monopoly wrench from infrastructure. So, in a way, Trump has just said, “The policy that I and the Republicans are promoting, it violates every condition of national security in the United States, and we’re not going to let Singapore do that either. But we’re only going to block Singapore from doing it because it’s Singapore and they’re Asians, not Wall Street.” I mean, that’s a translation of his policy and it is what it is.

SHARMINI PERIES: All right, Michael. I thank you for joining us today and looking forward to having you back very soon because I think these trade policies are rather interesting in terms of what’s being negotiated, and soon we may actually hear some sort of response on the part of China to these new tariffs. We haven’t had an official response from them but we’ll look out for it, and we’d like to have you back then. Thank you so much.

MICHAEL HUDSON: Thank you, good to be here.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.