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--:-- Sean Rameswaram: This is Today Explained. I'm Sean Rameswaram. You might have heard we're heading for a trade war. Wall Street is worried about a trade war. President Trump says he will slap tariffs on steel and aluminum. Which seems bad.
--:-- Sean Rameswaram: This is leftist economic policy, and we've tried it a whole bunch of times. of the last two centuries, and every time American families have suffered. I love the president. I think he's done a terrific job up to now. This could turn everything the other way. But also, maybe good?
--:-- Sean Rameswaram: The president's hasty announcement of a trade war appears to have been spooking markets. He wrote, when a country USA is losing many billions of dollars on trade, with virtually every country it does business with, trade wars are good and easy to win.
--:-- Sean Rameswaram: There are a lot of moving parts to this thing. Aluminum's involved, NAFTA's affected, Brazil's going to be mad. If the United States is about to piss off a bunch of its friends, you should know exactly why. Steel.
--:-- Sean Rameswaram: So I asked Matthew Iglesias what's up. He writes about economic policy at Vox. I really thought I understood how decision-making worked in the Trump White House, and then it changed.
--:-- Matthew Iglesias: We started with the question a lot of us have been asking lately. What's the deal with steel? It's heavy. It's strong. Some of it is imported from foreign countries, and Donald Trump is going to put a 25% tax on that imported steel.
--:-- Matthew Iglesias: The idea is that by taxing foreign steel, we are going to boost the domestic steel industry. And certainly in the short term, it's going to create a big profit opportunity for domestic steel makers because they could raise their prices up to the new sort of higher rate that foreign steel is going to cost.
--:-- Matthew Iglesias: So in the short term, you're looking at higher prices for people who use steel, bigger profits for American companies that make steel. And then in theory, if the 25% tax stays on for a long time, that greater profitability could lead to an expansion in domestic steel production.
--:-- Matthew Iglesias: So how do we get here? I mean you hear a lot about cheap Chinese steel flooding the market. What's the history here? The American steel industry took a big hit in the late 1970s and early 1980s. when some foreign countries, at the time Japan was a big player, it's gone global since then, upped their quality game in terms of steel production.
--:-- Matthew Iglesias: American steel output fell a lot in that period. And it's been pretty steady for the past generation. So we're not looking at a steady erosion of US domestic steel production. It fell a bunch. It never really came back. But it's been going okay despite these tariffs.
--:-- Matthew Iglesias: And we do import a lot of steel. The number one source of foreign steel for the United States is Canada, not exactly a distant land. There's a lot of commerce back and forth across that border. They do do a lot of steel there.
--:-- Matthew Iglesias: I feel like we've seen a lot of news back and forth in the past week about these steel tariffs. Could you kind of walk us through the back and forth of it?
--:-- Matthew Iglesias: Sure. So there have been reports for weeks that the White House was having internal arguments about whether or not to do this. And the situation became very chaotic at one point last week when reports came out that tariffs were going to be imposed almost immediately.
--:-- Matthew Iglesias: And then other reports said, no, no, no, there's not going to be any announcement this week. Then we heard on Thursday, Trump is going to do a meeting with executives from metal companies. So we did the meeting and then he comes out of the meeting and he just announces to the press pool. Yeah, we're doing it.
--:-- Matthew Iglesias: It'll be 25 percent for steel. It'll be 10 percent for aluminum. And it'll be for a long period of time. Tariffs are coming. And then he followed that up, not with, you know, a well-crafted executive memo laying out all the details of this, but with a couple of tweets.
--:-- Matthew Iglesias: And then he's been reiterating on Twitter ever since all weekend that this is happening, that he's ready for a trade war, he thinks we can win a trade war, that Canada and Mexico need to make concessions on NAFTA or they're going to be hit too.
--:-- Matthew Iglesias: He put out a couple of advisers on television over the weekend to defend this policy. Wilbur Ross. This is a can of Campbell soup There in the can of Campbell Soup there about 2 cents 2 pennies worth of steel.
--:-- Matthew Iglesias: So if that goes up by 25%, that's about 6 tenths of 1 cent on the price of a can of Campbell's Soup. Well, I just bought this can today, that of 7-Eleven down here and the price was $1.99.
--:-- Matthew Iglesias: So who in the world is going to be too bothered by six-tenths of a cent? Here's a can of Coca-Cola. Interestingly, they still have not actually done it. They keep saying that the tariffs are coming.
--:-- Matthew Iglesias: It seems like they are coming, but it has not been officially enacted. That said, the authority to do this sort of resides inside the Commerce Department. And The Commerce Secretary, Wilbur Ross, he has a background actually as an investor in the steel industry.
--:-- Matthew Iglesias: He is a proponent of these tariffs. Steve Mnuchin, the Treasury Secretary, Gary Cohn, the head of the National Economic Council, Secretary of State, they are all said to be opposed. Those are sort of the major heavyweights in most administrations.
--:-- Matthew Iglesias: But Ross, the Commerce Secretary, he's for this. So is Peter Navarro who heads a special White House office on trade and manufacturing. So it definitely appears that this is going to happen, but it has not literally happened yet.
--:-- Matthew Iglesias: And why are Ross and Navarro on board with so many Republicans standing against it? I mean it's a little difficult to speculate. But the general view seems to be that the existence of a trade deficit, right?
--:-- Matthew Iglesias: The United States buys more from abroad than foreigners buy from us is really bad. That's what they think. And so anything that pushes back against that, they have some kind of sympathy for.
--:-- Matthew Iglesias: The particulars of why aluminum and steel are being chosen, some of that has to do with the politics. This is a big concern in Pennsylvania and Ohio, which are sort of specifically areas that matter to partisan politics.
--:-- Matthew Iglesias: There is authority to invoke tariffs for strategic industries to protect national security. That's a power that the president of the United States has. The argument that American national security is threatened by importing steel from Canada is a little – I would say it's questionable.
--:-- Matthew Iglesias: The implication is that we might fight a war with Canada or that if we fought a war with someone else, the Canadians might refuse to sell us steel. Like a real war, not a trade war. Yeah.
--:-- Matthew Iglesias: The larger issue though is that Peter Navarro, he's an economist. He has a PhD. He was a professor in the University of California. But his views on trade are way outside the mainstream of the profession.
--:-- Matthew Iglesias: And he appears to think anything that makes it harder for Americans to buy goods abroad is going to be good for the American economy because we will buy more that's made at home and that will create jobs. Almost nobody believes a view as simplistic as Navarro's.
--:-- Matthew Iglesias: It almost sounds like a straw man view at times. But this seems to be what he really thinks. And outside of the Americans who might feel this directly because of their employment situations in Pennsylvania or Ohio, how might the average person come to encounter these tariffs if they are approved?
--:-- Matthew Iglesias: Sure. You know, if these tariffs come in, you should be looking at somewhat higher prices for consumer goods. Like a can of beer? Cans of beer, cars, large appliances.
--:-- Matthew Iglesias: So, no, if you think about it, right, I mean, if you look at a can of beer, right, now the metal content of that beer is not that big of a deal compared to the cost of actually brewing it, shipping it, refrigerating, retail markups, things like that.
--:-- Matthew Iglesias: So, you know, don't expect to see the price of beer explode or anything, but it should go up a little bit. For construction, though, is where you might see the biggest impact. I mean, if you're not in the market for housing, you won't necessarily notice that.
--:-- Matthew Iglesias: But a lot of construction projects happen on very thin margins. There's very complicated calculations. Big buildings in particular have a lot of steel in them and it could be very disruptive to that industry.
--:-- Matthew Iglesias: How that matters downstream is going to depend a lot on where you live. But like in sunbelt cities that are growing fast, that have big construction industries, that should be a big problem.
--:-- Matthew Iglesias: I think the biggest question though for the typical American isn't what happens with the steel and aluminum. It's what happens next. Like a trade war or something? Right.
--:-- Matthew Iglesias: So Europe is going to target some American products. Probably they're going to get cute. They're talking about bourbon because Mitch McConnell's from Kentucky. They're talking about Harley Davidson's because they're made near Paul Ryan's district.
--:-- Matthew Iglesias: They talking about blue jeans because they made near Kevin McCarthy the House Majority Leader district Are they going to tax Bruce Springsteen or something too They going to hit congressional leaders with some Americana type stuff
--:-- Matthew Iglesias: And that be bad you know for some people who are impacted But then the real question is like, what happens after that, right? Does Trump say, OK, it is what it is and we all move on and we talk about the next crazy thing that happens?
--:-- Matthew Iglesias: Or does he put in a new round? And if he does that, the Europeans will retaliate again and then we'll retaliate again. So you could see an incredible escalation, and that would be a really big deal.
--:-- Sean Rameswaram: Steel. Republicans are mad at President Trump about his steel tariffs, but a bunch of Democrats are totally down. Steel. More with Matthew Iglesias after the break. Steel. It's heavy. It's strong. Steel. Oh, I'm trying to conform. Heavy. Strong. to steal.
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--:-- Sean Rameswaram: In case you missed that, that's your first refill pack free at getquip.com slash explained. G-E-T-Q-U-I-P dot com slash explained. I'm Sean Rameswaram, and this is Today Explained.
--:-- Sean Rameswaram: An important takeaway from all this recent steel talk is that steel tariffs aren't new. In fact, the last time a Republican president imposed them was... I decided that that just the last Republican president.
--:-- Sean Rameswaram: Imports were severely affecting our industry, an important industry in a had a negative impact and therefore provide temporary relief so that the industry could restructure itself. Did it work out for him politically?
--:-- Sean Rameswaram: Bush put these things forward in part to sort of gain political support in Pennsylvania and Ohio. More narrowly, he was trying to cobble together the votes to pass a trade liberalization measure through Congress.
--:-- Sean Rameswaram: So in that sense, it worked, right? They got the vote in Congress that they needed. They sort of bought some people off with the steel tariffs. Ultimately, though, Europe imposed some tariffs as a sort of countermeasure. Revenge. Yeah, revenge.
--:-- Sean Rameswaram: And that became a political problem of its own. Bush backed down after less than a year and a half of his tariffs to sort of resolve this. Studies that have been done, they show that the Bush tariffs, they did create jobs in the steel industry.
--:-- Sean Rameswaram: But they say that they cost more jobs than that in industries that use steel. Some aspects of trade policy are, I think, very complicated. This particular thing is quite straightforward though. It's nobody – I mean maybe you're a weirdo and you do. But nobody just like buys steel, right?
--:-- Sean Rameswaram: You buy stuff that is made of steel. And so making steel more expensive, it's good for the people who manufacture steel. But it's bad for the people who manufacture stuff that is made out of steel. There are more manufacturing workers employed in industries that use steel than in industries that make steel.
--:-- Sean Rameswaram: So it's a tough sell. It's a tough sell. But it's also sort of a sell that's making these strange bedfellows. Like a lot of Republicans are angry. And some Democrats are down? Yes, exactly.
--:-- Sean Rameswaram: Bob Casey, senator from Pennsylvania. Sherrod Brown, senator from Ohio. Representative Ryan, also from Ohio, from a steel-producing region. They've been very, very vocal. They're very for this.
--:-- Sean Rameswaram: Trade politics is easy if you are a member of Congress I remember I asked one chief of staff on the Hill what do you think about this And he said we either for steel and against aluminum or it the other way around I can quite remember
--:-- Sean Rameswaram: And I said, well, what do you mean? And he was like, we have a factory. They either use steel or they use aluminum. I can't remember which one. So we're against that one. They're not actually making trade policy. You're just taking positions.
--:-- Sean Rameswaram: So you look at your district and you just look at what company headquarters, what factories do I have? If you have a steel mill, you're for steel tariffs. If you have a plant that uses aluminum, you're against aluminum tariffs. And it's simple.
--:-- Sean Rameswaram: You count on the president, not just on trade but on a wide range of issues to be able to take a sort of a broader view than that, right? Because you're the president of the whole country. So you sit and you say, look, we got a lot of can factories. We got a lot of steel factories.
--:-- Sean Rameswaram: I need to – I understand that everybody wants what's good for them. But I need to at a minimum like count everybody up and sort of weigh what's the public interest. Something Trump did earlier that was less controversial was he put tariffs on imported Chinese appliances.
--:-- Sean Rameswaram: Yeah. I am taking action to impose safeguard tariffs on imported residential washing machines and all solar products. It's going to raise the costs of washing machines to some people but also be a big help. But so washing machines, other household appliances, they're made of metal, right?
--:-- Sean Rameswaram: So earlier in the year, he's trying to help American appliance manufacturers. But now he's hurting American appliance manufacturers. So instead of a thing where maybe we all pay a little bit more for our washing machines, but we preserve a domestic industry, now we're all going to pay a little bit more for our washing machines for no reason at all.
--:-- Sean Rameswaram: With the left hand, we're helping the domestic appliance manufacturers. With the right hand, we're hurting the domestic appliance manufacturers. In the end, like nobody is helped. And that's what happens when you don't have a real policy process.
--:-- Sean Rameswaram: You have a president whose instincts incline him to favor tariffs, but whose political party and whose economic team is disinclined to favor tariffs. So he's just doing things. And there's not there's not a lot of rhyme or reason to when he's putting these on or what kind of strategy he's advancing.
--:-- Sean Rameswaram: What about President Trump's promise to make America great again? If not the most coherent set of trade policies, is this at least checking off a populist appeal box or something? I mean I think that's exactly to the point, right?
--:-- Sean Rameswaram: Trump practices very adeptly a kind of symbolic politics, a politics of nostalgia, a politics of true Americana-ness. And the image of steel in particular is very important to that. The image of coal is also important to that. The image of rural America is very important to that.
--:-- Sean Rameswaram: And Trump paints a good vista of sort of all these things going together and him promoting a backward-looking, nostalgic, great – we were great in the past. We will be great again in the future by being more like how we were in the past. Then when you look at it on a policy level, it's much more difficult, right?
--:-- Sean Rameswaram: So Trump has celebrated the opening of some new auto plants in the United States saying it's great. Thanks to me, they're coming here instead of coming to Mexico. But the steel tariffs encourage you to build the car in Mexico, right, where the steel comes in without the tariff and then you ship the car. So that's backwards too.
--:-- Sean Rameswaram: There's a tension there. And in general, American agriculture, right, the really rural areas where they're growing corn and soybeans and meat, they've been huge winners from global trade. America is an enormous exporter of agricultural commodities all around the world.
--:-- Sean Rameswaram: And if you have a big disruption to the world trading system, that's going to be a lot of Trump supporters. You know, rural Midwestern Americans involved in the farm industry either directly or indirectly are going to be harmed. So the policy details just do not go together nearly as nicely as the symbolic politics.
--:-- Sean Rameswaram: And so Trump sort of does best when he's heavy on symbolism and low on substance because when you try to put more and more substance into delivering on these promises, you find that they're in a lot of tension with each other.
--:-- Sean Rameswaram: Matthew Glacius is a senior correspondent at Vox. He also hosts the Weeds podcast. I'm Sean Ramisar. I'm host of the Today Explained podcast.
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