Stocks dropped last week after Trump announced his intention to impose tariffs on steel and aluminum imports. He didn’t base this action on economic arguments, but on national security, which makes sense. If we depend on Santa’s Workshop for steel needed for defense, and get into a conflict with Santa and his elves, that dependency is a strategic weakness.
There’s an argument for maintaining steel and aluminum production capacity at home, regardless of economics, because these are essential materials. But it’s not necessary to start a trade war to accomplish this.
Instead of taxing imports, we could subsidize domestic production by paying domestic producers the difference between their production costs and foreign production costs, and treating this as a defense expenditure. Or, alternatively, Congress could direct that steel and aluminum destined for defense use must be purchased from domestic producers, who then could charge prices high enough to stay in business because they don’t have to compete with the imports in this market. Like subsidies, this would pass the cost differential to the government, which is justified by the military’s need to guarantee the availability of essential materials if foreign supplies are cut off during a crisis. Producing military materials at home would also create well-paying jobs, although that’s not its primary objective.