Trump Says Tariffs Are Needed To Protect Vital Industries, But Are They?

Mar 13, 2018
Originally published on March 12, 2018 8:55 pm

When President Trump announced tariffs on steel and aluminum imports this month, he said protecting the two industries was vital for national security.

"We want to build our ships. We want to build our planes. We want to build our military equipment with steel, with aluminum from our country," he said at a March 8 White House news conference.

In other words, the U.S. military should be as self-sufficient as possible, and not rely on other countries to supply the essential materials it needs for defense.

It's an argument that makes sense at some level, but it also obscures a broader truth about military spending in the global economy: Supply chains have become so complex that it would be virtually impossible for the U.S. military to go it alone.

"Almost any item that you could look at [that] says 'Made in the USA' on it, frequently there is some content in it that comes from overseas," says former Pentagon official Andrew Hunter, now with the Center for Strategic and International Studies.

Trump may want to prop up the aluminum industry, for example, but making aluminum requires bauxite, a material that has become too expensive to mine in the United States, The Wall Street Journal reported recently.

Congress already requires the Pentagon to give preference to domestic manufacturers whenever possible, Hunter says. Certain materials such as stainless steel must be bought from U.S. suppliers.

The reasons are political rather than strategic, he says.

"A lot of that is driven by a pretty simple sentiment, which is [that] when people give their tax dollars to support the national defense, they hope that those taxpayers are being used in a way that also further supports the economy," Hunter says.

Also given preference are certain countries, such as Canada, with which the U.S. has reciprocal trading agreements. In some cases — for example, aircraft made by the Brazilian company Embraer — the U.S. allows products to be partly manufactured overseas, as long as they are finished domestically.

There's another question raised by the president's steel and aluminum tariffs: How necessary are they, really?

To impose them, Trump is implementing Section 232 of the Trade Expansion Act of 1962, a rarely used law that gives presidents great leeway to protect industries deemed vital to national defense.

"The case in 232 is the argument that for national security reasons we need to maintain a high level of production of some particular commodity," says Nicholas Lardy, senior fellow at the Peterson Institute for International Economics.

"One way of doing that is to put on a tariff, which makes imported goods more expensive and makes it more likely that the domestic firms will be able to continue production," he adds.

There's no question steel is an essential part of a wide range of weapons and other goods used by the military, from tanks to battleships.

But as much as the steel industry has shrunk over the years, the U.S. still produces millions of tons of it annually, Lardy says.

"The steel used by the United States military in tanks and all kinds of other uses is a very, very small portion of total production — well under 10 percent. The industry is not in decline in terms of output, so arguing that we need to put on tariffs now to preserve a steel industry that is essential to national security I think is a bit of a stretch," Lardy says.

And in the unlikely event that the U.S. runs out of steel, it has plenty of other places to get it.

Much of the steel imported today comes from friendly countries such as Canada, South Korea, Japan and the United Kingdom, with which the U.S. has strong military alliances.

The Trump administration has temporarily exempted Canada and Mexico from the tariffs and has suggested it may add other countries.

Lardy says the tariffs could invite retaliation by other countries.

"If we're protecting steel, other countries could protect a product they want to protect and say that it's for national security reasons. You're opening the door to this form of protection by other countries," he says.

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SARAH MCCAMMON, HOST:

When President Trump announced tariffs on steel and aluminum imports earlier this month, he cited concerns about national security. Trump said that for the defense of the country it's critical that those two domestic industries are strong. NPR's Jim Zarroli examines that claim.

JIM ZARROLI, BYLINE: Trump said at a press conference that the slow erosion of steel jobs in the United States isn't just an economic disaster - it's also a security disaster.

(SOUNDBITE OF PRESS CONFERENCE)

PRESIDENT DONALD TRUMP: We want to build our ships. We want to build our planes. We want to build our military equipment with steel, with aluminum from our country.

ZARROLI: When the U.S. imposes tariffs, it usually justifies them by saying the manufacturers are being hurt by unfair foreign trade practices. This time Trump invoked the rarely used Section 232 of the Trade Expansion Act of 1962. Nicholas Lardy is a senior fellow at the Peterson Institute for International Economics. He says the law allows the president to slap tariffs on products that are deemed necessary for defense.

NICHOLAS LARDY: One way of doing that is to put on a tariff which makes imported goods more expensive and makes it more likely that domestic firms will be able to continue production.

ZARROLI: What makes the law so attractive for the administration is that it allows the president to act quickly. He doesn't have to spend months or even years building up a case against U.S. trading partners, the way it usually works with tariffs. Because Section 232 is hardly ever used, the impact of the tariffs is unclear. Former Pentagon official Andrew Hunter notes that the U.S. already gives preference to domestic suppliers whenever possible.

ANDREW HUNTER: And a lot of that's driven by a pretty simple sentiment, which is when people give their tax dollars to support the national defense, they hope that those tax dollars are being used in a way that also further supports the economy.

ZARROLI: But the Defense Department needs to buy a tremendous number of products for its tanks and ships and military gear, and there are simply a lot of things the U.S. doesn't produce. Trump may want to see more aluminum manufacturing, for example. But to make aluminum you need bauxite, and it's hardly mined in the U.S. Hunter, who's with the Center for Strategic and International Studies, also points out that global supply chains are incredibly complex.

HUNTER: Almost any item that you could look at and it says made in the USA on it, frequently there is some content in it that comes from overseas.

ZARROLI: Requiring the military to buy too many of the products it needs domestically, he says, would put a huge strain on the Pentagon. Nicholas Lardy of the Peterson Institute also points out that the tariffs are probably not necessary - take steel, for instance.

LARDY: The industry is not in decline in terms of output. So arguing that we need to put on tariffs now to preserve a steel industry that is essential to national security I think is a bit of a stretch.

ZARROLI: And there's another issue. Modern militaries use an enormous number of products of all kinds. Once countries begin to declare certain industries off limits for security reasons, trade could at least in theory grind to a halt. By imposing tariffs, the administration has opened the door to retaliation by other countries, and that could pose as many problems as it solves. Jim Zarroli, NPR News, New York.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.