Tags
alliances, allies, aluminum, China, inflation, manufacturing, overcapacity, steel, subsidies, tariffs, Trade, trade law, Trump, World Steel Association, World Trade Organization, WTO, {What's Left of) Our Economy
President Trump has announced his decision to impose tariffs on U.S. imports of steel and aluminum – cue the trade war hysteria. And the national security hysteria. And the inflation hysteria. Here are some talking points I hope the administration will feel free to steal as it defends the decision in the days leading up to the release of the final tariff plan:
>Many countries have declared their intention to retaliate against the American tariffs with higher barriers to U.S. exports. Curiously, they are overlooking the Chinese government-subsidized overcapacity at the root of the long-time distortions in world steel and aluminum markets.
>Many of these countries want the problem tackled multilaterally. But the World Trade Organization (WTO) has failed to stem this overcapacity (or deal effectively with many other forms of Chinese trade and broader economic predation), and a G20 forum specifically addressing the steel issue has produced nothing since its founding in December, 2016.
>Although major steel-producing powers like the European Union have imposed their own steep tariffs on shipments from China, the global glut has continued. One reason may be that, since the global economic recovery took hold in 2010, according to World Steel Association data. the United States has been the major steel producer that has suffered by far the greatest loss of global production share by volume. (See this post of mine for the 2010 figures and the Steel Association’s latest report for the most recent – January, 2018 – figures.) And as of the most current World Steel Association data (2016), the United States is also the steel producer with the highest steel trade deficit by volume (21.7 million tons).
>As a result, charges that American steel tariffs in particular will jeopardize the rules-based global trade system seem to be arguing that this system requires the United States to remain as the world’s dumping ground for government-subsidized steel.
>A much more constructive response from America’s trade partners would be finally getting serious about shutting down China’s overcapacity and placing market forces back in the saddle for global steel pricing. The Trump tariffs should be seen as a signal that the United States will no longer accept world steel trade patterns that treat the United States as the fall guy, and should therefore act as a spur to achieve genuinely meaningful multilateral results.
>The above gaming of global steel trade by so many American trade partners also explains the need for the kinds of sweeping measures made possible by the national security-oriented Section 232 of U.S. trade law, rather than the narrower curbs required by, say, the countervailing duty statutes.
>Fears have been expressed in the U.S. foreign policy community, and by the Trump administration’s Defense Department, that certain tariff schemes may needlessly harm America’s relationships with key security allies. Those voicing such concerns should also explain why countries that would permit these U.S. measures to undermine alliance relationships should be seen as reliable partners when overseas crises erupt.
>Tariff opponents contend that America’s use of an allegedly bogus national security rationale for the curbs will open the doors for other members of the WTO to use equally specious justifications for their own tariffs on numerous products. These opponents seem to forget that most of the world’s major economies, which rely heavily on export-led growth resulting from large trade surpluses, so far have encountered little difficulty in protecting their own domestic markets via a wide range of both tariff and non-tariff trade barriers.
>New national security rationales for new tariffs will be especially suspicious if used by the numerous American security allies that have been free-riding on U.S. defense guarantees for decades – and skimping on their own defense spending. These allies include Germany, Japan, South Korea, and Canada.
>Tariff critics also insist that the American economy will suffer major harm from foreign retaliation. They seem – oddly – convinced that U.S. trade partners that rely heavily on net exporting to the United States for their growth have nothing to fear from further the American trade restrictions that may result. Will these countries really launch trade attacks on one of their best customers?
>Tariff opponents focusing on economic impacts argue that the measures will increase the cost of a key American manufacturing input, and reduce the competitiveness of domestic steel-and aluminum-using industries. They seem to fear that these industries cannot become or remain globally competitive if such inputs are priced via free market mechanisms, rather than kept artificially cheap due to foreign government decisions.
>These economically focused tariff opponents also seem to believe that the current U.S. economy is one characterized by companies that enjoy considerable pricing power. Given inflation that has long undershot the Federal Reserve’s target, that’s a difficult argument to understand.
>In addition, those with an economic focus appear unconcerned about the prevalence and spread of government interventions in trade flows not only in steel, but in a wide variety of traded goods. If foreign governments conclude that they can subsidize and dump two key American industries out of existence, why would they stop with steel and aluminum? How can a growing presence of foreign government-subsidized goods (and services) help strengthen free markets in the United States and enable Americans to reap their maximum gains? And how can such growing foreign intervention help the global economy as a whole progress toward reaping the maximum gains of unfettered trade?
Over to you, Mr. President!
Mariano Paniello said:
A video, Democrats Were Once For Tariffs: https://youtu.be/uI0DLdLwovU
Alan Tonelson said:
Thanks, Mariano, and I hope you’ll become a regular here if you aren’t already one. Re the Democrats, many still do favor major trade policy changes – especially the Members of Congress. But interestingly, Democratic voters have recently become much more keen on conventional trade liberalization policies and deals. Just as interesting: with the Republicans, it’s been the reverse!
Don Wheatley said:
The answer might be to have a National Value Added Tax (VAT) similar to Canada. Make it and sell it in Canada you pay the tax. Export it from Canada tax is forgiven. Import a product into Canada you pay the VAT.
A VAT which Japan, Canada and others have basically protects, to an extent, all home industries and assures that imports pay their share of taxes which are not collected due to loss of domestic production.
Alan Tonelson said:
Don – Thanks so much for this very interesting comment, and I could not agree more. In fact, I’ve supported a US VAT for many years and helped introduce legislation in the House in the mid-2000s to create one. And in this vein, what a shame that President Trump reacted so frostily to the VAT-like border adjustment tax provision that was included in the original House Republican version of the tax bill. All the more so since this tax was spearheaded by free trade stalwarts Kevin Brady, chair of House Ways and Means, and Speaker Ryan, and backed by many big multinational manufacturers. Hopefully, at some point, this idea will be revived. And I hope you’ll become a regular here at RealityChek if you aren’t already!
Paul Engels said:
Tariffs are indeed unfortunate and do not bode well for global (including American prosperity, long term.) As a frustrated Canadian taxpayer however, I can well-understand the motivation for this course of action by President Trump. Take the case of the Canadian aluminum industry: The Quebec government subsidizes domestic aluminum producers to the tune of over $7 billion matched by industry investment of $2 billion. That’s $300,000 per aluminum sector worker per year for 35 years! The government subsidy is via below-market value hydro-electric power provided to aluminum producers by the province. Meantime, all Canadians collectively pay Quebec $11 billion (2017) in inter-provincial transfer payments. The result is that Canadian taxpayer subsidized aluminum is sold to America at an advantageous price (maybe not technically “dumping” but subsidized, nevertheless.) Ironically, Quebec could profit hugely if they simply sold hydro power to the US at market rates. But they chose to prop up their aluminum industry. If I were a US aluminum producer, I would understandably lobby for a retaliatory tariff to blunt the unfair Canadian government subsidies.
Alan Tonelson said:
Paul, Belated and sincere thanks for this exceptionally interesting comment. Here’s hoping that the Trump tariffs can serve what I hope is the intended ultimate purpose – ridding the world of trade-distorting subsidies like that you describe above, at least in steel and aluminum. And I hope you’ll become a RealityChek regular!
Bob Barber said:
Thank you Alan for bringing some truth and common sense to this issue. Globalist pawns in business, government, and the media have spread so much propaganda on this issue, that the average American has been brainwashed into believing that a near trillion dollar per year trade deficit is a great thing when weighed against grossly exaggerated benefits of their so-called free trade.This drain on American wealth into the coffers of other nations (mostly totalitarian), profit desperate global corporations, compromised politicians, and greedy trade agents will eventually kill our nation through unrecoverable debt. These tarriffs and probably a lot more are necessary. As usual Trump’s truth on this ongoing scam has put the Globalist Establishment into a tizzy. Good for him- and bravo to you for publicizing the truth needed to save America!
Alan Tonelson said:
Belated thanks for these very kind words, Bob, and if you’re not already a regular here, I hope you’ll become one!
vik smith said:
It’s hard to believe that you sir are an educated man…you are pathetic.
Alan Tonelson said:
Thanks for sharing, Vik. But since you’ve taken the time to offer this comment, maybe you could elaborate and explain where I’ve gone astray?