Today, the United States seems to be going back to a protectionist policy that was in place for 250 years from 1789, through to the end of World War II. The average tariff during that period on goods entering the US was 38%. However, the US didn’t do this to punish countries or control the influx of products. The main reason the US charged tariffs is because they did not introduce income tax until 1917, and relied on Tariffs to finance its activities including war. At the end of WW II, most of America’s competitors’ (England, Europe, Japan, Korea, China) industrial base had been wiped out by the war. America believed it had a significant competitive advantage and wanted to export goods and services to rebuild these economies on a “tariff free basis”. The US did not fear competitive imports from these war-ravaged countries and signed on to GATT in 1947.

GATT and the Fall of Soviet Communism

The General Agreement on Tariffs and Trade (GATT) was established in 1947, to minimize tariffs and other restrictions, and to liberalize trade among all capitalist countries. In fact, this trade is a major reason why the democratic countries were able to economically out-pace the Soviet Union, contributing to the collapse of Communism. In 1995, GATT became the World Trade Organization (WTO), and with the collapse of the Soviet Union, the open markets/low tariff ideology became dominant worldwide in the late 1990s.

The Rust Belt & the Introduction of Quotas

American industry and labor prospered after World War II, under GATT up to the 1970’s when, for the first time, there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed due to a major influx of low-cost steel, TV sets, shoes, toys, textiles and clothing to name a few. Japanese cars threatened the US auto industry, forcing the US auto industry and its unions to combine to fight for protection, not with tariffs but with voluntary quotas.

During the Reagan and George H. W. Bush administrations, Republicans abandoned protectionist policies, and came out against quotas and tariffs in favor of the GATT/WTO policy of minimal economic barriers to global trade. The Canada/US FTA (Free Trade Agreement) was signed in 1987, which then expanded to NAFTA in 1995 when it included Mexico. President Bill Clinton, with strong Republican support, signed NAFTA in 1993, over the vehement objection of labor unions.

Likewise, in 2000, Clinton worked with Republicans to give China entry into WTO and “most favored nation” trading status.

With the decrease in overall tariffs under WTO and other agreements, countries resorted to internal subsidies to prop up their industries including subsidiaries to agriculture in most countries. For example, in Canada, the Milk Marketing Board and Wheat Marketing Board controlled prices, supply, and foreign competition to protect local farmers. Through these domestic controls, they were able to protect local manufacturers without imposing harmful tariffs.

Obama’s Re-Introduction of Tariff Controls, and Trump’s Double-Down

In November 2016, at the end of Obama’s administration, the US imposed “Anti-Dumping Duties “on steel arriving from  European and Asian including 54% on Austria, 69% on China, 51% on France, 21% on Germany, and 15% on Japan. These duties are still in place and have severely restricted steel imports and hurt American industry—particularly those who use high-alloy steels such as our wear resistant steels and tool, die and mold steels products, which are not even produced in America.

On May 1st 2018, President Trump signed into law duties of an additional 25% on steel and 10% on aluminum from Canada, Mexico, Europe and Asia, using an obscure, never before used law (232). This law was passed after WW II, allowing the President to impose tariffs for “national security” reasons, and letting him bypass Congress to implement these tariffs. (We should point out the irony of imposing a tariff on specialty high alloy steels and Aluminum used in fighter jets, submarines and tanks, which are not made in America, all in the name of “National Security). These duties are on top of the Anti-Dumping Duties from 2016/17, and have the potential to spark a trade war that, if escalated, could cripple any number of American industries.

What Can Be Done?

While the Trump tariffs bypassed Congress in their implementation, our Congress does still have the ability to address the issue, pressuring for a shift from the outdated Tariff system to a much more beneficial Quota system. We encourage every industry leader who will be affected by these tariffs to contact your local representative and demand that they abandon the harmful tariffs in favor of a quota system that actually benefits Americans.

If you’re a client of ours and would like to learn more about how these tariffs will affect your bottom line, please contact us today.