To Be Clear, Trump's Tariffs Were Not 'Produced by Purdue University' - Bloomberg

I was intrigued to see Purdue University’s name plastered all over the U.S. Department of Commerce document that made the case for President Trump’s 25 percent tariff on imported steel. Six times in the document the same phrase appears: “According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University ….”

So on March 8, I called Purdue and reached the economics professor who built the computer model. His name is Thomas Hertel, and he’s not overjoyed with the way the Commerce Department phrased Purdue’s involvement. He says it could give some people the impression that Purdue did the analysis, or even that it supported the findings, which he, at least, definitely doesn’t.

“I contacted them and objected to that language,” Hertel says. (I have asked for a response from the Commerce Dept.)

Hertel isn’t claiming the department used Purdue’s computer model incorrectly—more that it was parsimonious in what it released to the public. The Commerce document predicts gains for makers of raw steel, but says nothing about the losses that would be suffered by consumers or by companies that make things from steel. (For some reason, the department’s document on aluminum doesn’t cite the Purdue model.)

“When you’re hellbent on implementing a particular policy, you’re selective in what you listen to,” Hertel says. In case it’s not clear, he thinks the tariffs are a bad idea: “It’s hard to think of a policy that has such widespread opposition, and yet a president went ahead on it.”

Hertel started the Global Trade Analysis Project in the early 1990s. It’s come to be used by the U.S. International Trade Commission as well as European and African nations, Australia, Japan, and others. A large staff maintains it. “It’s kind of a standard tool for assessing the impacts of tariffs and trade liberalization,” says Hertel, adding that Purdue gathers data to put in the model and trains people on how to use them, but otherwise isn’t involved in users’ calculations.

For most of its history, the Global Trade Analysis Project was used to calculate the effects of reducing tariffs. Lately it’s been used to calculate the impact of putting tariff walls back up, which Hertel says he finds sad.

Trump’s tariffs are likely to worsen the global overcapacity that’s led to today’s punishingly low prices for steel and aluminum. First, because the tariffs are designed to induce American mills and smelters to ramp up their production. Second, because Canada and Mexico, which are temporarily spared from the tariffs, are likely to ramp up their own production to sell more to the U.S. market now that other sources are facing duties, making them more expensive.

Just as water flows downhill, overabundant steel and aluminum are likely to flow into the U.S. even with the new tariffs. Companies in countries that are subject to high tariffs will illegally route their steel and aluminum through Canada and Mexico to evade the duties, predicts Michael Delaney, a former senior staff member to U.S. Trade Representative Robert Lighthizer and now a consultant for Transnational Strategy Group LLC. “People involved in this are very, very clever, and you’re not getting 100 percent cooperation overseas. Transshipment would undermine whatever differential tariffs you were trying to apply.”

Transshipment, which involves using fake documents to disguise the origin of imports, is a long-standing problem in trade. In 2010, Senator Ron Wyden, an Oregon Democrat, had Senate staff create a fictitious American import company that conducted a sting operation on Chinese companies. It was called AvisOne Traders Inc.—AvisOne being an anagram of evasion. When prompted, many of the Chinese companies recommended routing their products through other countries to evade U.S. duties. Wrote one exporter of steel nails: “As you said, we can arrange the container shiping from Xingang to Malaysia ,Bangladesh or Singapore. And the shiping agent can help us to issue the original certification, it will increase the cost but i think it must be lower than duties.”

On the other hand, American importers who knowingly accept falsified documents can face prison terms, says William Perry, a Seattle-based partner in the law firm Harris Bricken. That’s why, he says, it’s more common for companies to use end-arounds that are perfectly legal. For example, Canada is free to import Chinese steel for its own use and then export to the U.S. the Canadian-made steel that the stuff imported from China replaced.

An even simpler and completely legal dodge is to do some processing on the raw steel and aluminum so it becomes a semfinished product, which isn’t subject to tariffs. Of course, that’s anathema to U.S.-based producers of both raw and semifinished metal products.

As Trump himself might have said, nobody knew tariffs could be so complicated. The silver lining for Hertel, as an educator, is that the fight over tariffs has become “a teachable moment.” He adds in an email, “This is the first time in my 30 years of studying trade policy that I have seen the public so engaged and wanting to really understand what is going on.”

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