Copper pipes are displayed in a home rebuilding store in New York City. — AFP
PRESIDENT Donald Trump’s proposed 50% tariff on copper imports is emblematic of the administration’s incoherent approach to economic policy: Soaked in nostalgia for America’s industrial past, it pursues strategies that will make it harder for US manufacturers to succeed now and in the future.
In announcing his policy on Truth Social, Trump noted that copper is necessary for semiconductors, aircraft, ships, ammunition, data centres, lithium-ion batteries, radar systems, missile defence systems, and even, hypersonic weapons, of which the United States is building many.
This is all more or less correct. So, why would you then want to raise taxes on copper?
Increasing the price Americans pay for copper makes the United States a less desirable location for building aircraft, ceding advantage to competing producers in Europe, Brazil and Canada.
It makes it harder to establish a domestic semiconductor manufacturing industry.
It exacerbates the already dire state of the US shipbuilding industry, which is wholly reliant on protectionist policies.
The strategic value of copper might be a basis for protectionism if the United States were getting its copper from hostile or unstable countries.
But copper is not a rare earth mineral, for which the United States must rely on Chinese suppliers, nor is it like oil in the pre-fracking era, when the United States had to import it from questionable regimes in the Middle East.
The majority of US copper imports come from Chile, and the next two major suppliers are Canada and Peru.
Meanwhile, there is also a robust domestic copper industry, which accounts for about half the copper used in the United States.
The majority of this copper comes from the swing state of Arizona, which may offer a narrow partisan rationale for copper protectionism.
But there is no strategic problem with importing copper from friendly countries in the Western Hemisphere – and every reason to worry that deliberately raising the price of a widely used production input will hamper US competitiveness in crucial industries.
This is, unfortunately, not an unusual consequence of Trump’s trade policy: By applying taxes on intermediate goods, he is encouraging the United States to specialise in resource extraction and primary commodities at the expense of complicated manufactured goods.
“Industrial policy,” to the extent that it works, functions by moving a nation’s economy up the value chain. In the early days of the American republic, for example, Alexander Hamilton worried that the United States would continue to be a de facto economic colony of Europe.
As a sparsely populated nation with abundant natural resources, a totally unregulated market might have caused America to specialise in exporting raw materials to Europe, which would in turn export manufactured goods back to America.
As an alternative, he proposed protective tariffs to promote the growth of US industry.
Leaders in this Hamiltonian tradition – John Quincy Adams, Henry Clay, Abraham Lincoln –believed in an active state that would invest in canals and railroads, field a powerful navy and promote industrialisation.
They were opposed by largely Southern political elites whose wealth was bound up with cotton exports and slavery.
They had no objection to the idea of an agrarian nation.
Trump borrows the tariffs from the Hamiltonian tradition, but completely misses the larger logic of the programme, as well as the altered nature of the modern economy. Over time, as the world has become richer and shipping has become cheaper, the cutting edge of manufacturing has become increasingly complicated.
These days it’s common to assemble a finished product from parts made in countries all around the world, with each part itself containing a staggering array of raw materials.
Countries get richer by specialising at the more complex end of the spectrum. To the extent that you can boost US natural-resource production by eliminating low-benefit regulatory barriers, that’s a win.
De-industrialisation spectre
But boosting the US copper-extraction industry at the expense of US copper-using industries is a recipe for de-industrialisation.
And much the same applies to Trump’s obsession with protectionism for industries like steel and aluminium, which are not raw materials exactly, but inputs to the production of things like cars and airplanes.
For the United States to be a manufacturing powerhouse, its industries need access to the cheapest possible inputs. It’s also worth considering that even though 19th-century pro-industrialisation politicians favoured tariffs, Trump is likely overrating their importance in promoting the growth of factories.
One important manufacturing input, after all, is workers.
As the economic historian Doug Irwin has noted, the era’s growth depended on population expansion – by which he means immigration – and capital accumulation.
Raising prices
Tariffs, he writes, “may have discouraged capital accumulation by raising the price of imported capital goods.”
Fun historical irony aside, the kind of quasi-open borders of the Gilded Age would probably not be a major boost to US manufacturing today.
But a serious industrial policy would take seriously the case for a visa programme for skilled workers with experience in fields such as semiconductors, batteries and shipbuilding.
At a minimum, the goal should be to avoid actions that make things worse.
Trump is right that copper is an important commodity. But it’s been thousands of years since mining copper was considered an innovative economic activity.
Copper is important because it’s used to make other stuff.
The goal of US trade policy, not to say industrial policy, should be to help America become a better place to make stuff that the world wants and needs.
Trump’s nostalgia economics is pushing the United States further from that goal. — Bloomberg
Matthew Yglesias is a columnist for Bloomberg opinion. The views expressed here are the writer’s own.
