Don't do it, Donald!

It won't help and you won't win.

US steel and aluminium are not infant industries.
The rest of the world will retaliate.
This is not temporary transition support.
Nor is it a justified anti-dumping measure.
It is protectionism that will spark a trade war that everyone will lose - plain and simple.

Donald Trump announced last Thursday that he would impose a 25% tariff on steel imports and 10% on aluminium.

I wrote about the prospect of Trump protectionism (Trumponomics) over a year ago, specifically some exceptions to the rules of free trade where protectionism may be justified - the infant industry argument; market power; and temporary transition support.

Let us review, shall we?

First, US steel and aluminium are not infant industries that can't afford private finance but will be able to 'pay back' this support once they have matured. Rather, they are mature and declining industries that would be able to obtain private finance if they had any long term potential. If Trump is trying to pick winners, he shouldn't pick losers.

Second, other countries are indeed considering retaliation that even the US's market power won't be able to absorb. Canada "will take responsive measures to defend itself" which could, for example, target agricultural exports and/or withdraw from NAFTA negotiations that Trump has been so keen to do. The EU (which is actually a bigger player than the US in terms of global trade) also is considering "swift, firm and decisive" retaliation on politically sensitive US exports like Kentucky bourbon and Wisconsin dairy products (two states that voted for Trump and would be particularly loud about his failure to protect them), as well as Harley Davidsons and bluejeans. Even if other countries would be better off letting Trump get away with this (their retaliatory tariffs will, after all, hurt their own people as well as the US), politics and national pride don't make for the most rational decision makers.

And many projections are predicting higher prices for US consumers and producers despite this market power. This includes the auto industry which relies on imported steel. And just in case you wanted more to show that any benefits to US industry would be outweighed by costs to industry, the stock market (you know, the thing that is literally a measure of expected future company profits) dropped 500 points on Trump's announcement.

As for temporarily supporting a declining industry to cushion the impact of this decline, this is what Trump said to industry regarding the announcement:

"We're going to build our steel industry back and we're going to build our [aluminium] industry back ... And you'll have protection for a long time in a while. You'll have to regrow your industries, that's all I'm asking."

Does that sound like temporary transition support? What other industries will he deem worthy of support before he realises that this new protectionism has got out of hand?

There is an additional exception to free trade that I didn't mention last time - dumping. This occurs where a foreign country (perhaps unintentionally) produces far more of a particular product than they can sell in their own country so, to obtain at least something for it, they sell it below cost in the export market. Trump has accused China of doing this. And theoretically, given China's size, they could put US industry out of business just with their 'overflow'. And there would be no guarantee that China would continue to supply this product to the US if their domestic industry were to disappear - let alone at these 'dumped' prices.

Ironically, Britain was upset at the US in the 19th century for just this - dumping of manufactured goods on the export market when there was a temporary domestic glut in the US, putting pressure on already-struggling British manufacturers. In fact, it also drove a similar protectionist movement in Britain at the time which, luckily, didn't actually result in a trade war.

But if Chinese dumping were the primary concern, Trump's tariffs would target only China, not the whole world. Furthermore, Canada is the largest steel exporter to the US. China doesn't even crack the top 10. This isn't an anti-dumping measure; it is blatant across-the-board protectionism.

And I haven't even mentioned the questionable logic that says this protectionism will help any US industries at all. Firstly, steel and aluminium in the US have become highly automated. US iron and steel mills produce essentially the same output they did 30 years ago, but employ just 86,000 workers, compared to 188,000 then. Any boost to this industry won't suddenly reverse these employment losses - it would be new investment in plant and equipment. And if foreign investment is needed to finance these expansions (which is likely), the benefits from this may not even accrue much to the US at all.

As for the aluminum industry jobs that have been lost overseas, they have not largely gone to China. They have gone to places like Iceland, Canada and Norway, where an energy-intensive industry like aluminium can obtain cheap geothermal or hydropower. These tariffs won't bring either industry back, but they very well may send manufacturers who depend on aluminium and steel as an input overseas.

Those hurt by the declining steel and aluminum industries absolutely deserve support. But giving them false hope is cruel. Not only will these tariffs not help those people, they will hurt everyone else.

Make no mistake, this trade war really will make everyone worse off - the US included.