(What’s Left of) Our Economy: A Fake News Attack on the Trump Metals Tariffs

Tags

aluminum, Catherine Rampell, competitiveness, fake news, manufacturing, metals, steel, tariffs, The Washington Post, Trade, Trump, {What's Left of) Our Economy

Pundits like the Washington Post‘s Catherine Rampell have every right to warn that President Trump’s metals (and other) tariffs will ultimately harm the U.S. economy more than it helps. What they have no right to do is peddle demonstrably false claims like her contention that because of the price hikes so far seen for steel and aluminum since these levies came onto the American trade agenda earlier this year, companies reliant on these materials for their final products “are now less competitive.”

I call these claims demonstrably false because every month, the U.S. government publishes detailed statistics on the nation’s trade performance, and the data through April contain absolutely no evidence that domestic metals-using industries are on the ropes – or anywhere close.

Let’s examine what seems to be the national chattering class’ and policy establishment’s favorite measure of industrial competitiveness: American exports. If the Trump tariffs have indeed been pushing U.S. metals-using industries close to the ash heap of economic history, then their overseas sales for the first few months of this year (the tariffs became likely when the Commerce Department officially recommended them in mid-February), should be much lower than they were the first few months of last year – or at least growing much more slowly.

In fact, just the opposite has been seen, at least when it comes to three major sectors of the economy that are especially heavy users of steel and aluminum – transportation equipment, non-electrical machinery, and fabricated metals products.

Over the first four months of this year (the latest data available), America’s global exports in these categories were not only 5.83 percent greater than over the same period in 2017. The year-to-date growth rate was some 7.2 times higher than that for 2017 (0.81 percent).

Perhaps more significant, the difference between the January-April, 2018 export growth rates for these metals-using industries and their January-April, 2017 growth rates was much greater than for American manufacturing as a whole. During the first four months of 2018, total U.S. manufacturing exports have grown 7.45 percent year-to-date. That’s higher in absolute terms than the export growth for the metals-using industries, but this export increase has been only 2.12 times faster than their export growth rate for January-April, 2017 (3.52 percent).

But what about my favorite measure of American competitiveness – trade balances and how they’ve changed? I focus on these two-way flows because the theory of comparative advantage at the heart of all justifications for the freest possible global trade makes sense only if these surpluses and deficits have consequences for global production patterns.

After all, comparative advantage holds that trade is the best possible way to create the best possible global division of labor – meaning that in a world of unfettered commerce, countries that trade products and services most successfully will inevitably wind up making those products and providing those services most successfully, and that all countries will benefit on net. And the countries that trade products and services most successfully are those that amass the biggest surpluses in those products and services. The opposite propositions logically hold the impact of running deficits in various sectors.

As it happens, the trade balance figures don’t show or presage any apocalypse for America’s metals-using industries, either. During the first four months of 2017, their cumulative trade deficit with the rest of the world increased by 10.56 percent on year. For the comparable period this year, the deficit’s year-to-date growth rate was faster: 11.64 percent. But clearly, this trade shortfall didn’t grow much faster.

The comparison with trade deficits for manufacturing as a whole is instructive as well. During January-April, 2017, this trade gap increased by 10.19 percent on year. During January-April, 2018, the figure was 10.85 percent.

So the metals-using industries’ trade deficit did grow faster during both periods than the shortfall for manufacturing as a whole. But the difference in the rate of acceleration has been trivial. In the metals-using sectors, the deficit during the first four months of 2018 grew 1.10 times faster than it grew during the first four months of 2017. For manufacturing as a whole, the deficit during the first four months of 2018 grew 1.06 times faster than during the same period in 2017.

I’d be the last to argue that this situation will never change. The Trump metals tariffs haven’t been imposed very long. Moreover, they’ve been phased in, so the full impact of their final (for now!), most sweeping version hasn’t yet been felt.  

Nonetheless, the effects could also be swamped by the benefits metals-using sectors have gained from the new corporate tax cuts and the regulatory relief offered by the Trump administration – two policies that industry as a whole has hailed enthusiastically as major boosters of competitiveness.

What should be unmistakably clear, though, is that claims that U.S. metals-using industries are already suffering from the Trump steel and aluminum are no better than Fake News – and deserve nothing more than scorn from all fair-minded readers.

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(What’s Left of) Our Economy: On Those Latest Trump Tariffs

Tags

aluminum, border adjustment tax, China, European Union, FDI, foreign direct investment, intellectual property theft, Made in China 2025, metals, overcapacity, steel, subsidies, tariffs, tax reform, Trade, Trump, value-added tax, {What's Left of) Our Economy

Never let a good set of talking points go to waste! Earlier this morning, one of the broadcast networks asked if I was available for a segment on the latest Trump administration tariff announcements, and wanted to get an idea of where I came down. Even as I was typing up the following, though, I was told that the plan had changed, and that the program in question had decided to go with a Member of Congress instead.

Yet since they’re still relevant to this latest phase of U.S. trade policy, I thought you might find them useful in this slightly edited form.

1.  If the Europeans and other major economies retaliate vs the new U.S. steel and aluminum tariffs, they’ll make clear their indifference to the government-subsidized Chinese output has flooded global markets with both these metals, and seriously distorted trade flows.  In recent years, these foreign governments have paid lip service to the need to curb Chinese overcapacity, but many have enabled it by transshipping Chinese metals (mainly steel) to the US market or stepping up their own exports to the US to relieve the pressure China has put on their own producers.

2.  As a result, (as I’ve previously documented) during the current global economic recovery, the US is the only major steel producing country that has seen its share of world output fall significantly. 

3. Moreover, (as I’ve also shown), the higher input costs resulting from the new metals and other tariffs pale beside the benefits recently received by U.S.-based businesses (including metals users) due to tax reform and regulatory relief.

4. Re both the steel and China tariffs, I wish that Trump had backed a superior alternative:  the Border Adjustment Tax contained in the original version of the House GOP tax bill.

The BAT would have functioned like a value-added tax (a levy imposed by virtually every other country) — imposing a tax on imports heading for the U.S. market, and providing a subsidy for U.S. exports.  Since the BAT would have been across-the-board, no U.S. industry (e.g., metals-using manufacturers) could have argued that it was going to be disadvantaged because its products would have received the same benefits.

Moreover, the BAT was backed not only by House GOP leaders with staunch pro-free trade records.  It was also supported by many major multinational manufacturers.  In addition, it would have been perfectly legal under the WTO, since it so closely resembles the value-added taxes so many other countries have had in place for decades.  But President Trump – for reasons that remain unclear – never came on board.

5. In the absence of the BAT, though, the metals tariffs are essential for correcting major distortions in global trade flows caused by Chinese overcapacity, and the China-specific tariffs are essential for offsetting the impact of Chinese trade predation (including rampant intellectual property theft and extortion) on high tech industries, exemplified by the “Made in China 2025” program.

6. Nonetheless, re China specifically, I have criticized some of the Trump response as being internally inconsistent.  If for example the United States convinces the Chinese to treat U.S. companies operating in China more equitably, U.S. corporate investment in the PRC could well increase, and the trade deficit that Mr. Trump wants to shrink is likely to grow, as much US investment in China creates products exported to the US.

7. More generally, I’m deeply skeptical that any Chinese promises to halt or reduce these forms of protectionism can be verified — because the Chinese bureaucracy operates so secretively, the Chinese national manufacturing complex is so vast, and because the United States will never be able to send over to China enough officials to monitor compliance effectively.

8. As a result, rather than seeking to improve Chinese behavior, I believe U.S. policy toward the PRC should aim first and foremost to reduce the extensive linkages between the two economies.  In this vein, ever more sweeping U.S. moves and proposals to curb Chinese direct investment in key industries in America is a good first step.

(What’s Left of) Our Economy: Beware the Fear-Mongering on the Trump Tariffs

Tags

Bloomberg, border adjustment tax, China, inflation, manufacturing, metals, overcapacity, productivity, real value-added, steel, tariffs, trade law, Trump, U.S. Business and Industry Council, value-added taxes, {What's Left of) Our Economy

Well, there can’t be any doubt about it now. President Trump’s trade policy course changes – and especially his determination hike U.S. tariffs – are already harming American manufacturers and the broader economy. After all, this Bloomberg News post just told us so. Except if you examine it carefully, and add a little common sense info, there’s no reason to believe any of these claims – especially for the manufacturing sector.

According to this Bloomberg report, “Confidence gauges spanning small businesses, factories and the public at large are coming off the boil as U.S. tariffs on imported metals — along with threats and counterthreats over Chinese goods — roil the stock market and cast a cloud over what was otherwise a bright economic outlook.”

Manufacturers reportedly face especially serious threats:

“The Philadelphia Fed’s index of business activity six months from now dropped 7.2 points to 40.7 in April, the lowest level since July. Earlier this week, a similar report from the New York Fed showed its future business conditions index registered the steepest one-month drop since the Sept. 11 terrorist attacks. Meantime, factories in both regions are reporting rising prices.”

And Bloomberg conveniently provided a chart displaying these reported “rising costs amid tariffs on imported metals.”

But the chart, and related macroeconomic data, actually represent compelling evidence that metals prices so far have had no discernible impact on U.S. manufacturing’s fortunes. Consider the following:

As the chart shows, the prices paid by inputs for factories in the Northeast sank significantly between 2014 and 2015. Steel prices fell especially sharply (largely because the Chinese government was fueling a massive global glut in this metal).

And according to official U.S. data, how did American domestic manufacturing fare? It grew in real value-added terms ( a measure of output preferred by many economists) by all of 0.90 percent.

The following year, according to the chart, prices these factories reported paying stayed very low, but began rising. Steel prices rebounded significantly, too. Manufacturing’s real value-added growth that year? About half the 2014-15 rate – 0.47 percent.

Those factory prices rose even faster the following year, and steel prices kept increasing. But the impact on America’s domestic manufacturing wasn’t exactly catastrophic. In fact, its annual real value-added growth nearly quadrupled – to 1.89 percent.

How on earth could this be? How about this as a starting point for an answer? Prices of steel or any other inputs aren’t the only influences on business performance. And they’re probably not the most important. For example, demand (aka “customers”) matter, too. In the United States, when those metals prices were dropping sharply between 2014 and 2015, price-adjusted economic growth turned in a solid 2.90 percent growth. The following year, when metals prices stayed unusually low, the real economic growth rate halved. And guess what also nearly halved? Manufacturing’s real value-added increase.

Even more interesting – between 2016 and 2017, when metals prices kept bouncing back, manufacturing’s real value-added jumped. Maybe in part because the economy’s overall growth rate increased by more than 50 percent, to 2.30 percent?

Looking at global growth (i.e., including foreign customers) yields similar conclusions. During that 2014-15 year of greatly reduced metals prices, pretty good U.S. growth but lousy manufacturing growth, the International Monetary Fund tells us that the global economy expanded by (a pretty poor) 3.10 percent. Chances are that feeble growth didn’t help America’s manufacturers, many of whom make much of their money by exporting.

Global growth only picked up to 3.20 percent the following year, but America’s growth tanked. The latter, then, seems to have mattered more to domestic manufacturers, as their own expansion rate fell by 50 percent. Between 2016 and 2017, however, when both the U.S. expansion and the global expansion sped up (the latter to 3.80 percent), American  manufacturing’s growth experienced that impressive takeoff. 

Now it’s true that the Trump metals tariffs could inflict greater harm on U.S. domestic manufacturers going forward, as they could impose on metals-users new costs that come on top of whatever global prices they need to pay at a given moment.  Nonetheless, it’s not like industry is exactly helpless to respond. For instance, it could start improving its productivity performance – which has been lousy on balance during this economic recovery. More productive sectors and companies of course can pass on input price increases without charging their customers more – and thereby undercutting their competitiveness.

At the same time, the metal-users’ loud complaints about the Trump tariffs point to a longstanding weakness of U.S. trade policy and especially the related body of trade law that the President has needed to rely on so far because the chief executive’s unilateral tariff-imposing authority is so limited. Because the trade law system, like U.S.-style legal systems generally, springs into action only when a specific complaint from private business is filed, its remedies are confined to that industry’s predicament. Not even the few trade cases initiated by the Obama administration or even the Trump administration have changed this pattern. (The sweeping tariffs on China sought in the President’s Section 301 intellectual property-centered action have come closest.) The tendency of such narrow-bore measures to enable foreign trade rivals to respond with divide-and-conquer tactics shows that two improvements should be made.

First, as proposed by my previous organization, the U.S. Business and Industry Council, industry-specific tariffs approved by the trade law system should be accompanied by similar protection for the “downstream” (i.e., user) industries. As a result, they would be much less likely to be victimized in the American market, anyway, by foreign competitors not saddled with higher input prices. 

Second, and even better, the administration should revive the Border Adjustment Tax that was part of the tax reform plan initially introduced by the House of Representatives’ Republican leaders. This measure, which would have worked much like the foreign Value-Added Taxes (VATs) used by most trading economies, would not only have provided the equivalent of protective tariffs for all U.S. goods and services facing import competition.  It would have boosted the competitiveness of all American exports in all foreign markets by providing the equivalent of a subsidy.   

Although President Trump initially (and weirdly) was cool to the Border Adjustment Tax, reportedly more recently he’s been changing his tune. Adopting this plan in particular could solve most of the economic as well as the political problems currently threatening his trade policies. 

 

(What’s Left of) Our Economy: RealClearAmateurism on Steel Tariffs

Tags

AK Steel, Armco, autos, foreign direct investment, Japan, Japan Economic Institute, Kawasaki, Michael Cannivet, RealClearMarkets.com, Ronald Reagan, steel, tariffs, The Japan Times, Trade, Trump, {What's Left of) Our Economy

One of my favorite sayings holds that “A little knowledge is a dangerous thing,” and a recent column on the RealClearMarkets.com website on steel tariffs does a splendid job of showing why.

According to author Michael Cannivet, who heads an investment company “serving high net worth private clients,” President Trump’s decision to impose tariffs on steel imports from a wide (but still to be determined precisely) group of U.S. trade partners are “not a real long-term solution” for “cities reliant on American steel and aluminum production” because they’re certain to harm U.S. companies in the sector that are “working hard to reinvent themselves by innovating.” And he chooses as a prime example a steel firm close to his heart – AK Steel, which has a plant in his wife’s hometown of Middletown, Ohio that has employed “generations of her family.”

But in Cannivet’s eyes, AK’s experiences are also important because (quoting another author):

“AK Steel is the result of a 1989 merger between Armco Steel and Kawasaki. The Kawasaki merger represented an inconvenient truth: Manufacturing in America as a tough business since the post-globalization world. If companies like Armco were going to survive, they would have to retool. Kawasaki gave Armco a chance, and Middletown’s flagship company probably would not have survived it.”

This analysis is absolutely right – except it omits one crucial point. Kawasaki – a Japanese steel company – didn’t merge with Armco out of the goodness of its heart, or simply because it viewed the Armco operations in question as unusually promising assets. It also merged with – and transferred state-of-the-art production technologies – to Armco in large measure because Reagan-era trade restrictions severely limited its opportunities to supply the lucrative American market via exporting from Japan. Here’s some evidence from none other than the Japan government-run Japan Economic Institute of America (an often useful source of information and analysis that unfortunately closed its doors in the very early 2000s):

“By the mid-1980s NKK and Japan’s other major steelmakers were beginning to eye onshore U.S. operations. Such a presence would give them a way around the trade restrictions that by then had become a fixture so that they could service the automotive and other Japanese manufacturers that were setting up plants in this country.”

And P.S. – why were so many other Japanese manufacturers (like automotive firms) setting up plants in America? Again, in large measure due to those same Reagan-era trade curbs, as explained by this recent column in The Japan Times:

“The Reagan administration forced the Japanese auto industry into accepting a voluntary restraint on their exports to the U.S., under which the annual shipments from Japan was limited to 1,680,000 vehicles. The Japanese automakers responded by launching production in the U.S. one after another to evade the trade restrictions — Honda was the first by building its long-planned auto plant in Ohio, and was followed by Nissan and Toyota.”

None of this should be surprising to anyone with more than a little knowledge of trade or the globalization in manufacturing in particular. My book, The Race to the Bottom, cited an immense number of examples of national economies much smaller than the United States using tariffs or other trade barriers to lure foreign manufacturing to their shores. As a result, there’s every reason to believe that a U.S. resort to these measures would work spectacularly – and instances of precisely such successes keep emerging. 

And that’s of course the point of this post: Cannivet clearly doesn’t know more than a little about trade or the globalization of manufacturing. What he knows for sure is that he doesn’t like tariffs – possibly because he learned not to like them in a college freshman economics course. But apparently that was all that RealClearMarkets needed to justify showcasing his views. Maybe the site should change its name to RealClearAmateurism.

Im-Politic: The Foreign Governments Funding Think Tank Experts on Trump Tariffs

Tags

aluminum, Brookings Institution, Center for Strategic and International Studies, Im-Politic, Peterson Institute for International Economics, steel, tariffs, think tanks, Trade, Trump

With the announcement of the Trump tariffs on steel and aluminum – and the prospect of more trade curbs to come – the news organizations on which Americans rely for accurate and impartial information have understandably turned to private sector specialists for facts and analysis.

What’s much less understandable is that many of these specialists work at Washington, D.C.-headquartered think tanks that receive significant funding from foreign governments – many of whose economies will be profoundly affected by any major changes in U.S. trade policy. Even worse, the press coverage of the Trump tariffs has consistently failed even to mention these conflicts of interest – even though some news outlets have reported on the subject in considerable detail.

To give you an idea of how widespread these conflicts are, here’s a list of the foreign government donors for three major think tanks, drawn directly from their websites, and some figures indicating the often major sums these governments (including groups they fund) have contributed to these organizations’ budgets for the most recent data year available:

 

The Brookings Institution, 2016-17:

$1 million – $1.999999 million

Government of Norway:

$500,000-$999,999

Australian Government, Department of Foreign Affairs & Trade

United Arab Emirates

$250,000-$499,999

The Japan Foundation Center for Global Partnership

Japan International Cooperation Agency

Taipei Economic and Cultural Representative Office in the United States

$100,000-$249,000

Australian Government, Department of Industry, Innovation, & Science

$50,000-$99,999

Government of Denmark

European Recovery Program, German Federal Ministry of Economic Affairs and Energy

European Union

Government of Finland

Korea International Trade Association

CAF-Development Bank of Latin America

Department for International Development, United Kingdom

Embassy of France

Japan Bank for International Cooperation

Temasek Holdings

The Korea Foundation

Korea Institute for Defense Analysis

Embassy of the Kingdom of the Netherlands

 

Peterson Institute for International Economics, 2016

$25,000-$49,999

Korea Institute for International Economic Policy

Swiss National Bank

Up to $24,999

Central Bank of China, Taipei

European Parliament

Japan Bank for International Cooperation

Korea Development Institute

Korea International Trade Association

Embassy of Liechtenstein

Monetary Authority of Singapore

 

Center for Strategic and International Studies 2016-17

$500,000 and up

Japan

Taiwan

UAE

Academy of Korean Studies

Korea Foundation

$100,000-$499,999

Australia

Denmark

South Korea

Turkey

$5,000-$99,999

Canada

China

France

Liechtenstein

The Netherlands

United Kingdom

Japan Foundation Center for Global Partnership

European Development Finance Institutions

Norwegian Institute of Defence Studies

Norwegian Institute of International Affairs

Shanghai Institutes for International Studies

Taiwan Foundation for Democracy

 

As I’ve written before, even analysts whose paychecks are wholly or partly written by foreign governments (or other special interests, like offshoring-happy multinational companies) can provide valuable insights.  They also have every right to weigh in on any policy debate they choose.  But unless you believe we don’t live in a world in which money talks, and that this goes double in a national capital, it’s clear that news consumers have an equally important right to know the source of the money behind the views they’re reading about – and that the media is letting its readers, viewers, and listeners down when this information is kept concealed.   

 

Making News: A New Op-Ed, National Radio Tonight…& More!

Tags

aluminum, At the Crossroads, automotive, foreign takeovers, Making News, Memphis Commercial Appeal, Qualcomm, semiconductors, steel, tariffs, Ted Evanoff, The John Batchelor Show, The National Interest, Trump

I’m pleased to announce that a new op-ed of mine was published yesterday – a post on the website of the foreign policy journal The National Interest on some of the more fundamental issues raised by the Trump administration’s tariffs on steel and aluminum imports. Click here to read my argument that the uproar over the levies reveals a major disagreement tension between the ideal of free trade and the ideal of free markets.

In addition, I’m scheduled to reappear on John Batchelor’s nationally syndicated radio show tonight on the Trump administration’s decision to block a foreign takeover of the U.S. semiconductor company Qualcomm. The segment is slated to begin at 10:15 PM EST, and you can listen live at this link. As usual, I’ll post a link to the podcast as soon as one’s available.

And I just found out that on March 8, Ted Evanoff of the Memphis (Tennessee) Commercial Appeal quoted me in a piece on the economic impact of the Trump tariffs. Ted is one of the country’s best manufacturing reporters, and his 2010 book At the Crossroads is a superb history of the modern American automobile industry and why its fortunes sank so sharply through the outbreak of the financial crisis. So I’m always flattered to know that he’s keeping up with my work.

And keep checking in with RealityChek for news of upcoming media appearances and other developments.

(What’s Left of) Our Economy: For America’s Steel-Makers, No Good Deed Goes Unpunished

Tags

aluminum, American Economic Review, durable goods, inflation-adjusted output, Jobs, manufacturing, Michael Mandel, multifactor productivity, productivity, steel, tariffs, The Economist, Trade, Trump, {What's Left of) Our Economy

One of the strangest aspects of the debate over the new Trump tariffs is the way analysts and reporters and pundits are now handling the issue of productivity in the American steel industry, which along with aluminum will receive the benefit of these levies.

Usually, industries like steel that win trade protection are described as economic losers – they supposedly need this government crutch because they’ve grown fat and lazy, or technologically obsolete, and as a result have lost whatever ability they’ve had to meet the challenge of global competition. Here’s a typical allegation along these lines made in 2002 by the globalization and free trade cheering Economist magazine – when President George W. Bush imposed tariffs on U.S. steel imports. The charge has been echoed much more recently by economist Michael Mandel.

Nowadays, though, tariff opponents have come up with a new twist: American steel-makers in particular don’t need protection precisely because they’ve become highly competitive. According to this perspective, the steel protectionists inside the outside the White House are overlooking how the major steel job losses they’re obsessing about have resulted overwhelmingly not from predatory foreign competition, but because steel companies have become so efficient that they can produce much more of the metal with a much smaller workforce.

There’s no doubt that the U.S. steel industry has dramatically boosted its competitiveness by introducing new technology and other forms of knowhow into its factories. The authors of the above Economist editorial clearly didn’t know about findings, published in the prestigious American Economic Review, that over the roughly 30 years preceding their leader, the sector’s “output per worker grew by a factor of five, while total factor productivity (TFP) increased by 38 percent. This [made] the steel sector one of the fastest growing of the manufacturing industries over the last three decades, behind only the computer software and equipment industries.”

Moreover, because virtually no American steel firms supply the domestic market with offshored production, virtually none of the labor productivity increase cited above has stemmed from the misleading upward bias to recorded labor productivity figures created by this practice.

But 2002 was then. What about now? Is Mandel right about steel as a latter day productivity growth laggard? Not according to data from the U.S. Bureau of Labor Statistics, which compiles and publishes the productivity data for the government. Its figures show that the American primary metals sector, which includes steel and aluminum, increased its multi-factor productivity by 5.52 percent between 2008 (when the last recession took hold) and 2015 (the latest figures).

Manufacturing overall, by comparison, saw its productivity actually worsen by this measure – considered the most accurate gauge of an admittedly elusive performance indicator – by five percent during this period. Moreover, durable goods manufacturing – the industrial super-sector containing primary metals – saw its multi-factor productivity shrink by 1.28 percent between 2008 and 2015.

So The Economist and Mandel plainly have given steel a wholly unjustified bad productivity rap. But does that mean that those who have recognized steel’s outstanding recent productivity growth are right to argue that the resulting job loss in no way warrants tariffs? Not exactly.

For even though steel and other primary metals have been productivity growth leaders, they’ve been laggards not only in job creation, but in output. Indeed, during that 2008-15 period, primary metals’ inflation-adjusted production sank by more than three times faster (15.98 percent) as overall manufacturing output (5.22 percent). The output gap was even wider between steel and durable goods in toto (-1.28 percent).

A highly productive industry facing a vast import tide that’s been shrinking in constant dollar terms doesn’t prove definitively that trade is central to steel’s problems. But it’s awfully suggestive – indicating in the process that, despite its good productivity deed, the U.S. steel industry is nonetheless being punished.

Making News: Cited in The Washington Post, Newsweek…& More!

Tags

Breitbart.com, Making News, Newsweek, steel, Steel News, tariffs, The Washington Post, Trade, Trump, WAKR-AM

Those Trump tariffs kept me awfully busy this past week – here’s a quick rundown of media-related developments:

Yesterday morning, I was interviewed on Akron, Ohio’s WAKR-AM on the new course apparently being taken in U.S. trade policy. I’ll post a link to any podcast that becomes available, but unfortunately, WAKR doesn’t present podcasts comprehensively.

Also yesterday, my analysis of the new U.S. manufacturing jobs numbers was cited in a post on the subject by Breitbart.com Economics and Finance Editor John Carney. Here’s the link.

On March 7, my views on senior White House economic aide Gary Cohn’s tariff-related resignation were quoted in this Washington Post article.

That same day, this Newsweek piece referenced my findings strongly indicating that many other U.S. trade partners have filling the vacuum that’s been left in the American market by tariffs that have kept out much Chinese steel – including by simply sending their imports from China stateside.

And also on March 7, Steel News featured coverage of my Monday CNBC appearance on the Trump tariffs. Here’s the link.

And keep checking in with RealityChek for news of upcoming media appearances and other events.

(What’s Left of) Our Economy: Martin Wolf Whiffs on the Trump Tariffs

Tags

allies, aluminum, EU, European Union, Financial Times, General Motors, Martin Wolf, Mary Barra, national security, steel, tariffs, Trade, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

I hate to go after the Financial Times‘ Martin Wolf, because he’s definitely one of the world’s smartest and most responsible economics commentators. Unfortunately, his March 6 column on the Trump tariffs fell so far short of his standards – and in fact simply parrots so much wrongheaded and/or simplistic trade-related conventional wisdom – that a response is essential. Let’s take his main arguments seriatim.

Wolf is apparently upset that the tariffs are “explicitly intended to last a long time.” But what could make more sense? If the aim is to spur more American steel and aluminum output, which requires major capital investments that need time to pay off, short-term tariffs, or tariffs with a publicized termination date, are bound to fall way short of their mark. The former will naturally scare off investors that simply have the requisite time horizon; the latter will additionally tell potential capital sources and foreign steel and aluminum exporters exactly when they can resume dumping subsidized product.

Wolf believes that the tariffs will so raise the costs of steel- and aluminum-using U.S.-made products that these industries and their workforces, which vastly outnumber those of the metals-makers, will suffer major losses of global competitiveness. In making this claim, he both overlooks the relatively small steel and aluminum content of many of these products, and oddly dismisses any possibility that these businesses will find ways to offset any notable input price increases with greater efficiencies elsewhere in their operations.

I say “odd” because that’s exactly what conventional economics tells us will happen – at least with companies determined to stay in their respective businesses. It’s one main reason why productivity growth exists at all. It’s also at the least significant that no less than General Motors Chair and CEO Mary Barra has stated that that’s exactly what her company will do: “We would look to find offsets and efficiencies to offset that [higher steel prices] and not have to pass it on to the customer.”

Wolf worries about the spread of what he admits are trade actions confined to steel and aluminum because so many American trade partners will retaliate. I was waiting for him – as a major supporter of free trade – preemptively to scold these countries for not realizing that theory holds that the best way to respond to tariffs is by compensating losers, not by retaliating. But it doesn’t appear to think that this venerable maxim applies outside the United States.

Wolf predicts that this retaliation will take the form of World Trade Organization  (WTO) challenges and safeguards “to forestall diversion of imports on to their markets.” But because the global steel market is a single integrated market (like so many other markets in this era of extensive globalization), such country-specific measures will fail to prevent diversion as completely as have similar past U.S. Measures. That’s probably why the European Union, for example, has hinted that it won’t wait for the WTO Good Housekeeping Seal for any retaliation. Which of course would be illegal according to WTO rules.

Wolf regurgitates the argument that the sweep of the Trump tariffs will hit “friends and allies” – belying the claim that they’re based on national security considerations. As I’ve noted, though, many of these supposed friends and allies have long been directly or indirectly helping make sure that an outsized share of Chinese-spurred global overcapacity in steel and aluminum winds up being sent to the United States. With allies like these….

Wolf expresses bewilderment that the United States would seek protection for its steel and aluminum industries because output in both has been “stable” since roughly 1990. But in the business world, that’s a euphemism for “no growth since roughly 1990.” Does that scream “competitiveness” to you? Moreover, Wolf overlooks the loss of global and U.S. market share for both sectors – not normally a sign of companies or industries with bright or even viable futures. (See here for the steel data and here for the aluminum figures.)

Wolf uses tariffs as his main measure of whether, as many trade policy critics argue, the United States really is the world’s least protectionist major economy. But nowhere in his article does the term “non-tariff barriers” appear – a shocking omission given their prevalence and strong growth as global negotiations have reduced tariff rates worldwide.

Finally, Wolf alludes to the canard that America’s national savings rate is overwhelmingly responsible for its bloated trade deficits. In fact, the relationship between the trade and broader current account balances on the one hand, and the savings rate on the other is a mathematical identity. As such, it says nothing whatever about causation – which could easily flow the other way.

It’s understandable that Wolf doesn’t like the Trump tariffs per se – I’ve been critical of them in some respects myself. But the scornful tone of his article, and its utter failure even to consider obvious rejoinders (much less address them) indicates that something deeper is at work here: One of our most thoughtful and knowledgeable economics analyst has come down with a bad case of Trump Derangement Syndrome.

(What’s Left of) Our Economy: So You Think There’s Free Trade in Steel?

Tags

China, overcapacity, steel, subsidies, tariffs, Trade, transshipment, Trump, U.S. Commerce Department, U.S. International Trade Commission, World Steel Association, World Trade Organization, WTO, {What's Left of) Our Economy

If there’s anyone out there who honestly believes that global steel trade has anything to do with free trade or free markets, and that many of America’s leading trade partners other than China are directly or indirectly complicit in rigging this commerce against the United States, here’s some data you need to see.

And P.S. – notwithstanding their own efforts to keep government- subsidized Chinese metals out of their markets, and the lip service they pay to the idea of cooperating to cut China’s massive overcapacity, the number of countries whose steel industries in particular have been doing just fine all the same should make clear why World Trade Organization (WTO) and other multilateral actions can’t possibly address the underlying problem of the Chinese state-sponsored glut. At least not until via tariffs or similar measures, Washington makes clear that the economies, who comprise the vast majority of WTO members, can no longer abet the Chinese with impunity.

First, let’s look at the percentage of world steel output by country (or political grouping, in the case of the European Union), and how it’s changed recently. These are volume figures from the World Steel Association for the world’s leading steel producers:

         2010                                                   January, 2018

US:    7.46                                                           4.89

China:   42.62                                                    48.05

EU 27: 12.18                                                    10.32*

Japan:   7.73                                                        6.48

South Korea:   4.12                                             4.39

India:   4.82                                                         6.47

Vietnam:   0.30                                                    0.76

Taiwan:   1.39                                                      1.41

Turkey:   2.06                                                      2.28

Brazil:   2.32                                                        2.06

Russia:   4.48                                                       4.09

Thailand:   0.29                                                    0.30

Canada:   0.92                                                      0.82

Mexico:   1.18                                                      1.16

Argentina:   0.36                                                  0.25

South Africa:   0.54                                             0.41

Egypt:   0.47                                                        0.47

Australia:   0.51                                                   0.35

* The January, 2018 figures are for 28 European Union countries.

What leaps out from these statistics: Except for Australia, the country that has lost the greatest percentage of global output share by far during this period has been the United States. And everyone else has either gained or pretty much held their own. Anyone care to explain this development by arguing that the United States has the world’s least competitive major steel sector? By a mile?

Next let’s take a look at changes in steel-producing countries’ exports to the United States over the last year. In and of themselves, they don’t prove that these economies are transshipping steel to the American market to help Beijing evade recent U.S. tariffs on Chinese steel, or that they have been responding to their own China steel problems by ramping up their exports to the United States. But the size and suddenness of these export increases is certainly noteworthy. In particular, it’s kind of amazing how much surge capability these figures make clear is apparently possessed by smallish countries.

Here’s how America’s steel imports have increased by volume in percentage terms from some important steel producers between the third quarter of 2016 and the third quarter of 2017, according to the U.S. Commerce Department’s latest figures:

global total: +19.56

China: -5.0

India: +209.0

Russia: +64

Taiwan: +36

Thailand: +274

South Africa +68

United Arab Emirates +98

Many of the value figures, drawn from the U.S. International Trade Commission, are even more striking. (These numbers cover iron and steel products and their percentage increases between full-year, 2016 and full-year, 2017.) Some of these percentage increases reflect the “law of small numbers” – the ease with which modest increases in absolute terms can generate big relative increases when the baseline is low.

But all of the below countries sold at least $13 million worth of iron and steel products to the United States in 2017. Also, all of the below increases followed sizable, and some cases enormous, decreases between 2015 and 2016, when overall U.S. imports fell by 25.7 percent. And this list leaves out countries whose iron and steel exports to the United States grew in both years, but ramped up rapidly in 2017. The main examples are Indonesia, the Dominican Republic, Kazakhstan, and Peru.

World: 35.6

China: 15.2

EU 28: 19.4

Japan: 1.6

South Korea: 21.2

India: 88.8

Taiwan: 33.1

Brazil: 51.8

Russia: 98.1

Australia: 65.4

Thailand: 213.7

Canada: 26.6

Mexico: 27.4

Argentina: 198.6

Albania: 583.5

Bahrain: 26,148.1

Belarus: 116.9

Colombia: 96.6

Georgia: 57.0

Guatemala: 430.1

New Caledonia: 70.7

New Zealand: 64.8

Oman: 81.1

Pakistan: 41.1

Peru: 127.4

Philippines: 147.1

Saudi Arabia: 794.5

Ukraine :111.1

United Arab Emirates: 123.7

Zimbabwe: 376.1

These data paint a compelling picture of the world’s leading steel producers complaining endlessly about the distortions created by China’s state-created global steel glut – to the point of creating a special multilateral forum for addressing the issue – but playing footsie with the Chinese behind the scenes at American steel producers’ expense. Which places a heavy burden of proof on opponents of President Trump’s response to explain how this situation bears any resemblance to free trade, and why broad-based tariffs aren’t an absolutely essential response.