Personnel Is (Trade) Policy

The latest regulatory developments on economic security & geoeconomics

By Paul Nadeau, Visiting Research
Fellow, Institute of Geoeconomics (IOG)

More Tariffs for Steel and Aluminum: The Trump administration increased tariffs on steel and aluminum imports by 25 percent on March 12 by removing all exemptions on the steel and aluminum tariffs originally imposed in 2018, as well as increasing the tariff on aluminum imports from 10 percent and expanding the list of “derivative” products to include downstream manufactures. Trump had intended to impose 50 percent tariffs on steel and aluminum from Canada but relented after Ontario Premier Doug Ford suspended a proposal to impose a surcharge on electricity exports from the province to Michigan, Minnesota, and New York.

European Commission President Ursula von der Leyen announced that the European Union would respond with retaliatory tariffs on $28 billion worth of U.S. products including steel and aluminum, textiles, home appliances, and agricultural goods, taking effect on April 1. Canada, the largest supplier of aluminum to the United States, announced retaliatory tariffs of $20.7 billion on steel and aluminum, water heaters, sports equipment, and computers, in addition to the 25 percent retaliatory tariffs on $20.8 billion of U.S. goods that Canada already plans to impose in response to Trump’s 25 tariff on Canada.

No Exemptions on Autos: U.S. Commerce Secretary Howard Lutnick ruled out the possibility of any exemptions for automakers from Germany, Japan, and South Korea when U.S. tariffs of 25 percent on automobiles are due to go into effect on April 2. Secretary Lutnick explained that because the point of the auto tariffs is to bring auto manufacturing back to the United States, tariffs must be imposed on all auto imports regardless of their relationship with the United States.

House Republicans Block Effort to Repeal IEEPA Tariffs: The continuing resolution which was passed by Congress and signed by President Trump included language that would prevent any member of Congress from bringing forward a resolution to terminate the state of emergency imposed by President Trump that allows him to impose tariffs on Canada, China, and Mexico. The tariffs on these countries were imposed under the International Economic Emergency Powers Act (IEEPA) which allows the President to take certain economic countermeasures in response to a national emergency. A national emergency may be revoked by a vote of both chambers of Congress, but the continuing resolution blocks a vote on a potential resolution by declaring that the remainder of days in the first session of the 119^th Congress do not qualify as calendar days, exempting the national emergency from a law that allows Congress to force a vote.

Trump Revokes Iraq’s Ability to Purchase Electricity from Iran: The Trump administration revoked a waiver exemption that allowed Iraq to purchase electricity from Iran. The administration had originally sought to revoke Iraq ability to purchase both gas and electricity. Iraq relies on gas imported from Iran for 43 percent of its energy.

OFAC Sanctions Criminal Group in Sweden: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions on Sweden’s Foxtrot Network, a transnational criminal organization, on March 12. The announcement alleges that the network is responsible for drug trafficking and attacks on Israelis and Jews in Europe, and that it attacked the Israeli embassy in Stockholm on behalf of Iran.

Analysis: Personnel Is (Trade) Policy

The line that “personnel is policy” goes back to the Reagan administration of the 1980s and means that decisionmakers need to hire the right personnel if they want the right policy. Whether that depends on ideological outlook, competency, diversity, or whatever, the policy goal should be reflected in the personnel who are hired. The Trump administration is no exception to this, and the personnel that surrounds the President provides one of the best signals of the administration’s vision and ambitions while the personnel that’s being cut provides one of the best signals of the ceiling of those ambitions.

Using fiscal year 2023 numbers, the U.S. federal government collected $4.4 trillion and spent $6.6 trillion. On the expenditure side, the Department of Government Efficiency (DOGE) aims to cut $1 trillion this year, a target so far being reached by focusing staffing and contracting (and also in violation of the 1974 Impoundment Control Act which effectively requires spending and cuts to be directed by Congress rather than unauthorized groups like DOGE), while the budget framework passed by Congress would attempt to cut $2 trillion. The biggest challenge to balancing the budget by addressing expenditures is that 64 percent of the budget goes to mandated spending like Social Security, Medicare, Medicaid, and similar “entitlement” programs.

On the revenue side, Trump has suggested replacing the Internal Revenue Service (IRS), an agency of the Treasury Department that is responsible for collecting federal taxes, with an External Revenue Service (ERS) which would be responsible for collecting the tariff revenue that would replace the revenue collected from taxes. For perspective, half ($2.2 trillion) of the federal government’s revenue in FY2023 came from individual taxes and $80 billion came from tariffs. The proposed $4.5 trillion in tax cuts would reduce available revenue to the federal government and thus put further pressure on tariffs to close the gap. The Committee for a Responsible Federal Budget, an independent nonpartisan organization, estimates that the tariffs currently in force and under consideration since the beginning of January would raise $110-120 billion per year. Even accounting for the uncertainty involved with making such estimates, they fall far short of what would be required for tariffs to singlehandedly finance the U.S. federal budget.

There’s also the fact that using tariffs to generate revenue requires having imports to tax – but if imports drop, which is also one of the goals of the Trump administration’s economic strategy, then there will be less imports from which to collect tariffs and consequently less revenue for the government. That’s why the only tariff level that could feasibly raise enough revenue to replace federal taxes (roughly 70 percent or higher) wouldn’t do the job because imports would crumble.

But the Trump administration may not even have the personnel to simply accomplish the task in the first place. Preparing the reciprocal tariffs as Trump directed illustrates the situation perfectly: the order directs the Commerce Department and the Office of the USTR to review the tariff schedules and codes of U.S. trade relations with roughly 200 countries, for a total of more than 2 million tariff lines to be reviewed and ready by April 2. Tariff exemptions pose a similar challenge, because while blanket tariffs are relatively easy to apply (just add them to everything entering the United States), more exemptions mean more time to review the items entering the country, adding an additional burden. The Trump administration has already run into this problem: the revocation of de minimis benefits for Canada, China, and Mexico (a provision which allows goods worth $800 or less into the United States duty free and subjects those packages to less inspection) was suspended until “adequate systems are in place to fully and expeditiously process and collect tariff revenue”. Combined with the lack of senior appointees at many agencies and the possibility of continued staff reductions by DOGE, the Trump administration may not even have the personnel in place to achieve its ambitions.

Personnel cuts pose a risk not just to capacity, but also to expertise. One of the reasons the United States, particularly under the Biden administration, turned toward economic security measures in its response to China, Iran, Russia, and others is because of the long years of experience and professional and administrative expertise that was developed following the targeting of terrorist finance networks as part of the response to the attacks on September 11, 2001. Over the past month, two senior career officials at the Commerce Department, Matthew Borman, principal deputy assistant secretary of commerce for export administration who was particularly responsible for export controls on China, and Eileen Albanese, director of the Office of National Security and Technology Transfer Controls, were both pushed out of their positions by the Trump administration. While the motivation for the exits is unclear, it represents a loss of expertise in a space where one would expect the Trump administration to be fully operational.

The optimistic scenario is that the Trump administration understands the dissonance between capacity and policy but is determined to do more with less. It could also be that efforts like reciprocal tariffs are less about the specific tariff lines to be reciprocated and more about using the tariffs broadly to exact concessions from trading partners. Even accepting those assumptions, their ambitions need bandwidth and expertise beyond what’s in currently in place. Trump’s administration seems determined to achieve their policy goals not with the right personnel, but with less and less personnel. They’re not just making a bet on the shape of the future economy but also making a bet on their capacity to do it.

Disclaimer: The views expressed in this IOG Economic Intelligence Report do not necessarily reflect
those of the API, the Institute of Geoeconomics (IOG) or any other organizations to which the author belongs.

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