Last week, Trump trade adviser Peter Navarro wrote the following in a USA Today op-ed:

A poster child for the success of President Trump’s tax, trade and worker-training policies in lifting the spirits — and incomes! — of American workers will be a new aluminum mill. This new aluminum mill will be built in Ashland, Ky., in the midst and mists of Appalachia’s rugged mountains, in one of our nation’s most poverty-stricken areas. 

Ashland is located in Boyd County off Route 60, on the banks of the Ohio River, bordering West Virginia and Ohio. It was once a booming steel, oil and coal town — until the steel mills in the area started closing down, Ashland Oil moved its headquarters to the Cincinnati region, and the coal mines began to shutter. 

Today, Boyd County suffers from a declining population and a debilitating opioid epidemic. But help — not just false hope — is on the way. 

The new $1.5 billion aluminum rolling mill that will soon be built — with a groundbreaking on Friday — will cover 45 acres. This state-of-the art mill will create up to 1,800 construction jobs and about 500 permanent positions in a county where the unemployment rate is almost 40% higher than the national unemployment rate.

For the sake of the people in that region, I hope the mill does get built and is very successful. But just for fun, I took a closer look at this “poster child” aluminum mill. Its actual origins paint a very different picture. In May of 2017, a WSJ op-ed entitled “The Mill That Right-to-Work Built” explained how Craig Bouchard, the CEO of the company building the mill, chose Ashland, KY as the site:

[A past experience with owning a steel factory] soured him on organized labor, and it’s one reason he was determined to build his new aluminum plant in a right-to-work state, where workers can’t be compelled to join a union. Before choosing Ashland, he drew up a list of 24 potential sites. The logistics favored Ashland, and Kentucky offered $10 million in tax incentives as well as low-cost electricity. But Mr. Bouchard says he was prepared to build elsewhere had Kentucky’s Republican governor, Matt Bevin, not signed right-to-work legislation in January.

…

Mr. Bouchard says one of the plant’s advantages will be freedom from rigid union work rules and retiree legacy costs, which handicap many American steel and aluminum manufacturers. “There’s only one way to build a big business in these industries today, and it is greenfield,” he says. “You have to start from scratch. No unions, therefore no pension legacies.”

There are more details in an April 2017 article in Ashland’s Daily Independent:

Bouchard said his company’s interest in locating the massive plant in Kentucky piqued after the state passed its controversial right-to-work legislation.

…

Bouchard said he spoke with [Governor Matt] Bevin “right after” the state passed right to work, which happened in January, and Bevin remained persistent for weeks in promoting cities and regions across the state. The company narrowed its field of candidates down to 12 cities in Kentucky, and 12 cities in another state Bouchard refused to name.

…

Last winter, CSX Corporation cut 101 jobs at its facility in Russell. A year before, AK Steel Ashland Works sliced its payroll by 633 workers through a mass layoff still in effect. The steel mill now employs about 200. Some of the laid-off steelworkers have fled the Tri-State region in search of a new lifeblood, but a majority still cling to hope and remain with their families.

Bouchard said the AK Steel situation “did play a factor.” He said he knows the AK Steel executives well, and some of his companies have been a supplier or customer of the major American steel provider in the past.

“It’s a great company, and their employees are always well trained. I feel for those families, I think the AK Steel executives feel for those families, we’re going to put some of them back to work.”

There seem to be a lot of reasons — right to work, state tax breaks, available labor — for the company’s decision to build an aluminum mill at that time and in that place. Trump’s trade (and other) policies do not appear to have played much of a role.

After what had become a monthly ritual of delaying the Section 232 steel/​aluminum “national security” tariffs for some countries, the Trump administration went ahead and imposed them on Canada, Mexico and the EU as of today. (Retaliation by these countries will follow soon.) There is also now an investigation into whether tariffs should be applied to automobile imports on the same basis. You may wonder, how can the term “national security” be stretched so far beyond issues related to actual national security? Commerce Secretary Wilbur Ross explains why:

Ross … cited an “elaborate definition” laid out in the Section 232 statute and said the tool “isn’t by any means confined strictly to military applications.”

“So, while the label is national security you need to look at the legislation itself, and the question isn’t ‘Is this mainly a military thing?’ It’s obviously mainly not a direct military thing but infrastructure and the economy are what gives you military security,” Ross said, reiterating prior comments.

“So, I know people like to wave the flag: ‘Oh, well you shouldn’t use that definition.’ That definition is what Congress enacted long before Donald Trump became president. And so, the fact that we are utilizing legislation that was passed quite a few years ago shouldn’t surprise anyone,” he said.

He’s right about the broad language of the statute. Take a look at a key provision, in particular the second sentence:

The temporary exemptions to the Section 232 tariffs on steel and aluminum granted to Canada, Mexico and the European Union (EU) expire at midnight tonight, and the Trump administration has announced that it will now impose these tariffs. This action makes clear that in addition to flouting the rules based trading system the United States itself established, the Trump administration makes no distinction between foes and allies.

The EU announced its retaliation list earlier, with a 25% duty on 182 products. Today, Canada responded with an announcement that it would levy tariffs of its own, amounting to $16.6 billion. That figure includes a list of 127 potential products for retaliation, from steel and aluminum, to household products like yogourt, coffee, tomato ketchup, and toilet paper, which will face a 25% or 10% surtax. Retaliation won’t take place until July 1st, giving Canada some time to refine this list in the meantime. Mexico announced that it would also seek to impose equivalent measures on items such as steel, lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, blueberries, and various cheeses, among others. Both countries have stated that their countermeasures would stay in place until the U.S. lifts its tariffs. 

Prime Minister Justin Trudeau was firm in calling the 232 tariffs “unacceptable,” going on to say that, “Canada will also challenge these illegal & counterproductive measures under NAFTA Chapter 20 and at the WTO. It is simply ridiculous to view any trade with Canada as a national security threat to the US and we will continue to stand up for Canadian workers & Canadian businesses.” Ridiculous is about right. It is also hard to see how the Trump administration would imagine any other type of response from its allies, whose patience they have surely tested. However, it’s worth remembering that Trump’s team appears to view reality through a rather distorted lens, and somehow thinks these tactics will produce results for the United States.

As a case in point, Commerce Secretary Wilbur Ross suggested that the imposition of tariffs should not prevent negotiations, citing China as an example. Surely, one would hope that the Commerce Secretary knows the difference between imposing tariffs on China as opposed to U.S. allies, but unfortunately, that does not seem to be the case. (As my colleagues and I have mentioned elsewhere, he doesn’t even seem to know the meaning of reciprocity or comparative advantage). In fact, what this episode reveals, in addition to the last year of trade policy uncertainty, is that the United States can no longer be trusted to negotiate in good faith. While Trump might think that keeping people on their toes and wondering “will he” or “won’t he” is somehow a viable strategy, this approach is likely to backfire in the long-run. 

For one thing, imposing tariffs on Canada and Mexico while negotiations on a new North American Free Trade Agreement (NAFTA) are ongoing is reckless. The three countries seemed to be getting very close to a deal this month, but this action may serve to further intensify discord among them. If delivering a truly modernized NAFTA that can better serve the American people was his goal, this strategy will likely do the opposite. Furthermore, our transatlantic partners are even less likely entertain negotiations, especially if they are approached, as French President Emmanuel Macron stated in March, “with a gun to our heads.” 

Yes, it’s true that the impact of the tariffs– even if our closest allies do impose retaliatory measures– may not be felt throughout the entire economy, making it seem like raising tariffs is no big deal. However, the tariffs and the countermeasures will inflict wounds on consumers, businesses, and on specific U.S. exporters, and lead our closest trading partners to look elsewhere for the things they want to buy, and enter negotiations with countries that do so in good faith. “Art of the Deal”? More like “How to Lose Friends and Alienate People.”

Various news outlets are reporting that, at midnight tonight, special U.S. tariffs on imports of steel and aluminum from Canada, Mexico, and the European Union will go into effect. This action stems (incongruously and capriciously) from two nearly yearlong investigations conducted by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962, which found that imports of steel and aluminum “threaten to impair the national security” of the United States. This seldom used statute gives the president broad discretion both to define what constitutes a national security threat and to prescribe a course to mitigate the threat. On both counts, President Trump has abused that discretion.

In March, the president announced his intention to impose duties of 25 percent on steel imports and 10 percent on aluminum imports from all countries. But temporary exemptions were granted to some countries in an effort to extort commitments from them to do their part to reduce the U.S. trade deficit (by selling us less stuff and buying from us more stuff) or to agree to U.S. demands in ongoing trade negotiations (South Korea, Canada, Mexico). The Koreans succeeded by agreeing to limits on their steel exports and by upping the percentage of US-made automobiles that can be sold in Korea without meeting all of the local environmental standards. Ah, free trade…

Apparently, the Europeans, Canadians, and Mexicans haven’t bent sufficiently to Trump’s will, therefore those countries—those steadfast allies—constitute threats to U.S. national security and will no longer be exempt from the tariffs, which means that U.S. industries that rely on steel and aluminum (imported or domestic) will be hit with substantial taxes to mitigate that threat. Got it?

This announcement comes on the heels of one made earlier this week regarding the “trade war” with China, which is back on 10 days after Treasury Secretary Steve Mnuchin declared it to be “put on hold.” (I guess it was just a rain delay.) On June 15, the administration will publish the final list of Chinese products—about 1,300 products valued at about $50 billion—that will be hit with 25 percent duties. The Chinese government has published its own list of U.S. exports that will be hit with retaliatory duties in China.

So, as has been the case every day for the past 16+ months, the U.S. and global economies (even as they’ve strengthened) remain exposed to the whims of an unorthodox president who precariously steers policy from one extreme to the other, keeping us in a perpetual state of uncertainty. With the Europeans, Canadians, Mexicans, and Chinese all preparing to retaliate in response to these precipitous U.S. actions, at the stroke of midnight we may finally get the certainty of the beginning of a deleterious trade war.

Reversing course yet again, this morning President Trump declared that he will indeed impose 25 percent tariffs on $50 billion of imports from China. He also announced plans to publish new restrictions on investments by Chinese persons and entities, which will take effect, presumably, in early July. The president seems to thrive on the uncertainty and chaos that his version of leadership churns out on a daily basis, but whether any of this actually happens is anyone’s guess.

The administration is right to be concerned about China’s mercantilist technology policies, but it seems to have no clue about how to mitigate the problem. Tariffs will do nothing to address China’s promotion of national champion industries, nor will it dissuade intellectual property theft of forced technology transfer policies. They will disrupt global supply chains and make Americans, Chinese, and many others around the world less well off than they are today.

For over a decade, Washington and Beijing have been waging a tit-for-tat technology trade war, which has come into clearer focus during the Trump administration. There are far better options than tariff wars to make competition in the technology space more market-oriented and mutually beneficial, including by negotiating a bilateral free trade agreement.

Drawing attention to rising gas prices this week, Senate Minority Leader Charles Schumer (D‑New York) called for President Trump to ease pain at the pump by leveraging his relationships with key OPEC leaders as well as the presidential bully pulpit to exert pressure on oil companies. “These higher oil prices are translating directly to soaring gas prices, something we know disproportionately hurts middle- and lower-income people,” the senator added.

While his apparent belief that gas prices are determined more by the whims of corporate leaders than market forces is severely misguided, Sen. Schumer’s stated concern for the welfare of American consumers is welcome. Rather than rely upon President Trump’s ability to cajole foreign and corporate leaders into lowering the cost of gas, however, Sen. Schumer should introduce legislation to repeal the Jones Act.

Passed in 1920, the Jones Act mandates that ships which transport goods between domestic ports be U.S.-built, U.S.-flagged, and at least 75 percent U.S.-owned and crewed. Such strictures, in turn, raise transportation prices by eliminating access to cheaper options which do not meet these requirements. This cost increase reverberates throughout the economy, with few parts harder hit than the energy sector. Although the total cost of the distortions imposed upon this key industry is unknown, anecdotal evidence suggests that it is significant. Consider:

• A 2014 Congressional Research Service report found that the purchase price of U.S.-built tankers is “about four times the price of foreign-built tankers, and U.S. crewing costs are several times those of foreign-flag ships.” Given such a cost structure it’s no surprise the report also found that shipping crude oil from the Gulf Coast to the Northeast on Jones Act-compliant tankers costs roughly three times greater than shipping the oil a longer distance to Canada on foreign-flagged ships ($5 to $6 per barrel versus $2 per barrel). Professor James Coleman of Southern Methodist University, meanwhile, points out that refineries in this part of the country “pay more than three times as much to ship oil from Texas rather than from West Africa or Saudi Arabia.” 
• A 1999 Government Accountability Report (GAO) report stated that, incredibly, the cost to ship oil from Alaska’s North Slope aboard foreign-crewed and built ships to the U.S. Virgin Islands—which is exempt from the Jones Act—was approximately three times less than to the Gulf Coast on Jones Act vessels ($2.35 per barrel versus $7.15 per barrel).
• A 2013 GAO report noted that “representatives of airlines purchasing jet fuel for use in Puerto Rico told us that they typically import fuel to the island from foreign countries, such as Venezuela, rather than from Gulf Coast refineries.” This occurs, the report added, “because of difficulty in finding available Jones Act vessels to transport jet fuel and, when vessels are available, the high cost of such shipments compared to shipping the product from foreign countries.”
• According to the CEO of the Overseas Shipping Group, a provider of energy transportation services, the cost of hiring a Jones Act ship for crude service is about three to four times higher than using a foreign-flagged vessel. 

This is but a sample of the costs imposed by the Jones Act, which drives up the price of gas and all manner of goods purchased by Americans. If Sen. Schumer and his fellow Democrats are serious about their desire to ease the financial burden placed on Americans by the rising cost of oil, scrapping or deeply reforming this nearly 100-year-old law would be an excellent place to start.

Trade headlines are getting more and more absurd. The Commerce Department apparently will investigate whether car imports impair national security and thus require a 25% tariff, which one trade lawyer said would prompt “pant-wetting laughter — followed by retaliation” among U.S. trading partners. Although maybe, as the linked article suggests, this is all just to put pressure on Mexico during the NAFTA talks, so who knows if it means anything. It’s very hard to say what is going on or where any of this is going. Perhaps, then, this would be a good time to take a break from the headlines and consider some more general trade issues.

I was reading a recent New Yorker article entitled “Is Capitalism a Threat to Democracy?” and, not surprisingly, I came across a lot of points that irritated me. In crafting a letter to the editor, it occurred to me that if I wanted it published, it would be better to focus on just one issue rather than send them a long list of complaints. Here’s the letter I sent, as published:

In Caleb Crain’s essay about whether capitalism poses a threat to democracy, he discusses Robert Kuttner’s views on the impact of free trade but leaves out a key consideration (Books, May 14th). Beyond the impact that free trade has on Americans, its benefits for the developing world should not be ignored. Hundreds of millions of people have been helped out of poverty by an American-led system of trade liberalization. Perhaps this will not convince American voters, but it should count for something.

That was the version as edited by the New Yorker. The letter I sent was a little different, in that I had a parenthetical as follows: “Perhaps this will not convince American voters (although if it were ever pointed out to them, they might approve), … ”

One of the things Donald Trump has shown us is that you can say unorthodox things and change the debate, as it turns out people believe things we were not aware of. This can be a bad thing, but I can imagine that it might also be a good thing. What if we had a politician who explained how Americans benefited from free trade, and then also noted that free trade had helped bring hundreds of millions of people in other countries out of poverty. Isn’t it likely that many people would think that was pretty good? Couldn’t that actually generate support for free trade?

Of course, there may be a group of people that doesn’t care about things that happen outside of the United States, and are suspicious that helping non-Americans must mean hurting Americans. But don’t most people care a little about what happens elsewhere? I hope so, but I suppose we’ll never know, because the issue of helping others through free trade is almost never mentioned. It’s just not a significant part of the public debate. As a result, we really have no idea if Americans care about this, and whether it could generate more support for free trade. It would be nice if someone gave this a try, though. Trump has shown us that unorthodox strategies can work. If someone tried out a positive unorthodox message, we might be pleasantly surprised by the results.