US steel tariffs split business between delight and outrage

March 14, 2018

When economists from the Congressional Budget Office surveyed the US steel industry in 1986 and tried to decide whether trade protections going back to the 1960s had helped reinvigorate America’s steel companies, they came to sobering conclusions.

“Protection did not achieve its long-term goal of producing a substantial modernisation of the industry,” they wrote. Moreover, successive trade moves appeared to do little to increase either domestic output or jobs. Between 1968 and 1984, the economists noted, the number of US steel workers had “declined continually” so that it “was nearly half of what it had been”.

Were it not for Donald Trump, that CBO report might serve as a dusty lesson of history. But after what trade experts have described as the greatest act of American protectionism since the Nixon administration, the president has, more than three decades on, again turned the US government into the protector of industry.

Mr Trump imposed tariffs of 25 per cent on steel imports and import taxes of 10 per cent on aluminium. In doing so, he has thrown out decades of orthodoxy and what had become an American mantra about the pitfalls of protectionism — and declared the rescue of the US steel industry a matter of national security.

“Steel is steel. You don’t have steel, you don’t have a country,” the US president said as he signed the tariffs. The question is whether the policy will be remembered as a much-needed act of political and economic genius, as Mr Trump and some of his aides claim, or populist folly.

The move is ostensibly aimed at China, which the US has accused for years of dumping excess steel capacity on global markets, depressing prices and hurting domestic producers. Prompted in part by a 2014-2015 surge of steel from China, which took the country’s share of US imports to about 8 per cent, years of anti-dumping action and tariffs have reduced that figure to just 2 per cent last year, according to official data.

Mr Trump and the US steel industry claim that China has circumvented those tariffs by trans-shipping steel via third countries. They also argue global efforts to negotiate a reduction in Chinese production have been ineffective.

Yet while the president exempted neighbours Canada and Mexico, which together accounted for a quarter of US steel imports in 2017, the countries likely to suffer most are allies such as the EU, Brazil, South Korea and Japan.

President Trump’s initiative has been hailed by US steel executives and union leaders. It also led to promises of new investment and the restarting of mothballed mills.

US Steel, one of the country’s largest producers, announced the reopening of one of two idled Granite City blast furnaces in Illinois. The workforce had fallen to just over 700 from 1,800 before the temporary partial closure in 2015. Other producers such as Nucor have said the tariffs will pave the way for their own expansion plans.

However, the tariff decision prompted angry reactions from steel-consuming industries and also from within the ranks of the Republican party. Republicans have watched previous presidents such as George W Bush — who briefly imposed a 30 per cent tariff on steel imports in 2002 — make what they see as the same economic mistake.

“Tariffs are taxes that make US businesses less competitive and US consumers poorer,” more than 100 Republican members of Congress wrote to the president as he was preparing to sign his proclamation.

Studies by economists have shown that the 2002 Bush tariffs on steel, which were abandoned after the World Trade Organization ruled in favour of an EU challenge in 2003, led to the loss of more jobs than they saved.

This month a similar study sponsored by the Trade Partnership, a pro-trade business group, predicted that Mr Trump’s tariffs would lead to the net loss of almost 146,000 jobs. This is because while the tariffs were likely to add more than 33,400 jobs in the US metals sector, the study warned that they may also cause almost 180,000 lost jobs throughout the rest of the economy.

By invoking US national security, the tariff plans have also raised what trade experts see as potential threats to the global trading system. The General Agreement on Tariffs and Trade (GATT), which defines the laws of global commerce, includes an exception for national security that was intended to allow signatories to erect trade barriers and protect critical industries in times of war or national emergency. That has been invoked only rarely in the more than 50 years since the US and other countries signed GATT in 1947.

The concern is that Mr Trump’s use of the loophole will encourage other countries to do the same. Moreover, some fear that if the US is challenged at the WTO, as it is likely to be, it could decide to dispute the global trade arbiter’s jurisdiction over the question of what poses a proper question of national security.

Given what some see as the weak case for the Trump administration’s national security argument, that would clear the way for other countries such as China to take a similar approach.

Mr Trump’s actions have also led to threats of retaliation from the EU and countries such as Brazil that have added to the risk that the global economy could be consumed by a destructive trade war.

“Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession,” said Roberto Azevêdo, WTO director-general.

Taking to Twitter, Mr Trump had argued in response to such fears that “trade wars are good, and easy to win.” He also threatened to fire back at any EU retaliation by levying new tariffs on European cars.

Donald Tusk, president of the European Council, responded: “The truth is quite the opposite. Trade wars are bad and easy to lose.”

All of which means that in deciding to protect the steel industry — and some of the ailing rust belt communities that helped elect him in 2016 and may re-elect him in 2020 — President Trump has turned what many see as a narrow American economic interest into a global problem.

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