3-8-18 9:40 AM EST | Email Article
By Gerald F. Seib 

As President Donald Trump prepares to impose hefty tariffs on imported aluminum and steel, there are two important things to remember: First, this is a moment of truth for the Republican party on economic policy.

Second, it was inevitable.

From the beginning, the Trump administration has represented an attempt to weld together establishment and populist economic thinking. It was possible for the two to coexist when the agenda was dominated by debates on health care, which isn't central to either philosophy, and tax cuts, where the two sides could come together.

Yet the marriage was always an uneasy one, and the deep divide was bound to burst to the surface when the agenda turned to immigration and trade, as it has this year. Any administration staffed on the one side by National Economic Council head Gary Cohn, alumnus of Goldman Sachs and personification of the establishment's beliefs in globalization, and on the other side by Commerce Secretary Wilbur Ross and White House adviser Peter Navarro, personification of a belief in a new economic nationalism, was always headed for a family feud.

The only thing delaying the feud was the wait for the president to decide where his true allegiances really lie: with the globalists and the GOP's core business supporters, who have been so happy with his tax cut and deregulatory impulses, or with the populist voters who propelled him to office in part because of his promises to attack "unfair" and "stupid" trade deals. He has tried to have it both ways and, true to form, made it hard to know where rhetoric ends and true beliefs begin.

Now, the president appears to have made his choice -- prompting Mr. Cohn to resign and presenting his party with its own choice, one its congressional wing had badly hoped to avoid. Most Republicans in Congress grew up in a party deeply devoted to the belief in free trade and open markets and opposed to the kind of protectionist action Mr. Trump's new move represents. That came into plain view Wednesday in the form of a letter signed by more than 100 GOP House members expressing misgivings about the president's course.

Mr. Trump appears willing to temper his move to impose a 25% tariff on steel imports and a 10% tariff on aluminum imports by exempting, at least temporarily, imports from Canada and Mexico. But that impulse is driven less by a philosophical commitment to open trade among economic partners than by a desire to use the threat of lowering the tariff boom to force renegotiation of the North American Free Trade Agreement.

That means, among other things, the Republican party has arrived at a crossroads. Some may argue that what Mr. Trump is doing isn't all that different from what one previous GOP president, Ronald Reagan, did when he punished Japan for its trade practices, and another, George W. Bush, did when he imposed his own version of steel tariffs.

In fact, though, Mr. Trump's move "is really very different," says Tony Fratto, a former official in the Treasury Department and the White House in the George W. Bush administration.

For starters, Mr. Trump is acting against imports not by using legal authority designed to provide narrow and temporary relief to an industry being hurt by unfair trade practices abroad, as Mr. Bush did. Instead, the president is acting under a provision that declares imports of aluminum and steel a threat to U.S. national security, a much broader and less transparent process that could open the way to more actions in other sectors.

An even bigger difference, Mr. Fratto says, is that "both Reagan and Bush really were free traders" who took their actions as steps to buy political support at home that in turn would help them move on to bigger free-trade agreements. Mr. Reagan was trying at the same time to negotiate a new global free-trade pact and a free-trade agreement with Canada. Mr. Bush was proposing a series of free-trade agreements, both bilateral and multilateral, while he moved on steel.

Both, in short, were trying to show to skeptical industries and workers that they could be tough in enforcing free-trade deals even while trying to cut new free-trade deals.

"Trump is in a different place," Mr. Fratto says. "He's not trying to expand trade agreements. He's trying to roll them back."

Politically, the key question is whether the rest of the Republican party follows him. Wall Street Journal/NBC News polling has shown a slight decline in support for free trade among Republicans in recent years. Still, the party is split. When asked a year ago whether free trade was good or bad for the country, 46% of Republicans said it was good and 48% bad. Mr. Trump is making that more than an academic question.

Write to Gerald F. Seib at jerry.seib@wsj.com


(END) Dow Jones Newswires

March 08, 2018 09:40 ET (14:40 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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