Truth About Steel/Aluminum Tariffs
The steel and aluminum tariffs ordered by the President Trump last week elicited the same “Chicken Little” squawks as the end of net neutrality, the roll-back of years of Obama market meddling regulations, and across-the-board cuts in federal taxes. The calamitous fallout predicted from the President’s latest policy move includes tit-for-tat trade wars, skyrocketing consumer prices, and the collapse of the stock market. Suspicions were even cast on the Commerce Department’s rationale behind recommending the tariffs: maintaining strong industrial metal production in America is vital for our national defense.
Meanwhile, the economy is humming along (313,000 jobs added in February) thanks to the tax cuts and regulatory weeding, and hard numbers beneath the anti-Trump clatter show that tariffs will actually help spur, not slow, economic growth.
“Fighting back against predatory trade practices is an important and necessary step to defend critical American industries, employers, and workers,” said PMA President & CEO David N. Taylor. “For decades, the United States government has allowed our domestic metals producers, which have been historically strong in Pennsylvania, to be victimized by illegal trade practices. This defensive action to protect America’s military industrial base is long overdue.
“Industrial metals production requires billions of dollars of intensive manufacturing infrastructure,” Taylor added. “If a blast furnace goes cold, it warps and distorts, never to be used again. Again, it is America’s industrial metals production capacity that our foreign adversaries are attempting to ‘buy’ out from under us through subsidized overproduction.”
Predatory trade practices over the decades have cost America thousands of high paying jobs and have hollowed out entire communities. Just over the past twenty years, six basic oxygen furnaces and four electric furnaces have closed and employment in the industry has dropped 35 percent, according to figures from the Alliance for American Manufacturing (AAM).
As PMA’s Taylor said, the President’s reaction was not an impulsive one. He addressed the problem all the way back in 2016 during the campaign.
“If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful presidential power to remedy trade disputes, including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962,” Trump said during a June campaign stop in Monessen, Pennsylvania.
Likewise, the tariff numbers, 25 percent on steel and 10 percent on aluminum, were not pulled out of the air, as some media reports have suggested. Commerce arrived at the numbers after over eight months of investigation under Section 232 — the study that also lead Commerce Secretary Wilbur Ross, when announcing the findings, to say that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security.”
On the industry front, David B. Burritt, CEO of the U.S. Steel Corp., in repeated interviews, said that a strong industrial metals industry is fundamental to the health of the nation and our national security. It’s a vital part of our first line of defense.
“We need a robust steel industry,” Burritt said during a March 7 appearance on CNBC. “Without it we can’t build the weapons we need to defend our nation. The only thing we can do to them (our enemies) is unfriend them on Facebook.”
Within days of the announcement of the tariffs, US Steel said it was calling back 500 workers to its Granite City Works in Illinois. Republic Steel says it plans to restart a northeast Ohio steel plant that could bring back more than 1,000 jobs. And Century Aluminum announced the rehiring of 300 at its Kentucky plant.
Scott N. Paul, president of the AAM, insists the tariffs will lead to even more good news on the jobs front despite some predictions of job losses citing previous tariffs.
“A recent job loss estimate on the Section 232 remedy should be viewed with deep skepticism,” Paul wrote in a March 7 letter to Congress. “A similar study released during the Section 201 action in 2002 to 2003 made similarly March 7, 2018 exaggerated claims of job loss, but the ITC (International Trade Commission) questioned their methodology and cited another study showing that, within the broad definition of ‘steel-consuming industries’ used, employment increased by almost 53,000 after falling 281,000 prior to the tariff.”
AAM said that the predictions of skyrocketing consumer price increases are likewise unsubstantiated.
Scott Boos, AAM’s Senior Vice President, Government Affairs & Policy, said they looked into the impact of the tariffs on dozens of products, and showed, for example, they would add a penny and a half to the cost of a six-pack of beer and about $200 to a $35,000 car.
“I think Americans would be willing to pay that small extra amount to protect American jobs,” he said.
Finally, trade enforcement actions are common, with 82 new antidumping and countervailing duty cases initiated in 2017 and a total of 411 orders in place across a range of different industries, covering both allies and strategic competitors.
“Suggestions that using available trade enforcement tools would force China to initiate a massive selloff of U.S. debt are unfounded, as China itself would be the biggest loser as its massive holdings would lose value,” Paul wrote. “Similarly, China should have no interest in starting a trade war, since it’s 2017 trade surplus with the United States set an all-time record of $375 billion.”
It was 2007, when China first acknowledged that it was over producing steel and flooding the international market. Since then its production has only grown. It now produces six times the steel made in the United States and accounts for half of the world’s steel production. On paper the U.S. officially imports just three percent of its steel from China. But the backdoor imports to the U.S. market are not accounted for in that figure, as China exports steel through third countries to circumvent “nation of origin” labels.
The bottom line is that state-subsidized overproduction by China distorts the international market price of steel and aluminum, and undermines America’s ability to compete. The tariffs will help restore balance to the international system, thereby allowing American producers to compete on equal footing with our subsidized competitors.