Stubbing America’s Toe on Steel Tariffs
Tariffs are in a sense like other taxes; easy to impose, hard to roll back,
and usually employed for the “greater good.” Thus triggering tariffs creates a feel good solution, a political sugar rush, but often later a bitter backlash to those ordering them.
I feel that the Trump Administration’s decision to slap steel and aluminum tariffs on many of our global trading partners admirably makes the populist political case but misses the mark when it comes to practical economic effect and intended outcome. There’s no doubt American steel industries have been devastated for a generation by cheaper foreign imports.
Equally, the overall trade playing field has not been even for the USA.
American industrial workers have paid the bitter price with job losses from Pennsylvania to Illinois.
That’s why I have long supported Free trade, but Fair trade. Fair has been missing for a long time.
Steel tariffs of 25 percent will be slapped on countries which have flooded the American market with cheaper steel. China comes to mind with its overproduction and underpricing. But ironically it emerges that while China has become a huge global steel producer, it is not even in the top five countries exporting steel to the U.S. market!
America’s top steel imports come from Canada, Mexico and the European Union, all including our closest allies and trading partners.
Canada and Mexico, our NAFTA partners, will be slapped with tariffs So too are European Union countries and NATO allies, Britain, Germany and Belgium.
Canada and the Europeans, rightly upset, have vowed to retaliate in moves which could lead to a trade war.
Steel and aluminum clearly have a strategic component which is largely overlooked. The American steel industry was part of what President Franklin D. Roosevelt called the Arsenal of Democracy which helped win WWII.
Cities like Pittsburgh became the epicenter of production and prosperity. In 1952, a steel strike shutdown the industry confronting President Harry Truman with a major national crisis. But today would we even notice an American steel strike?
In the great steel town of Bethlehem, PA the mills are now closed replaced with bling bling casinos. Since the 1960’s the USA lost over 400,000 jobs in the steel industry. In the meantime, for the current 140,000 American steel workers, productivity has increased fourfold given technological innovation.
Indeed the tariff impulse is as old as the American Republic; Presidents Abraham Lincoln and William McKinley favored the measures. The Republican Party and the Democrats have both embraced and shunned tariffs over the past century. Recently, GOP House Speaker Paul Ryan and the Republican establishment firmly opposed Trump’s tariffs. Ironically, many Democrats support them.
Surprisingly America’s steel imports comprise only about 2 percent of U.S. trade; yet the symbolism and perception far outweighs the seemingly small numbers. Symbolism creates misperceptions.
In the past twenty years, President George W. Bush slapped tariffs on steel while Barack Obama imposed tire tariffs on China. Protectionism creates a feel good solution which in the short term helps and in the long term raises cost, cuts choice, stifles competition and creates the conditions for global mistrust and turmoil.
Witness some European Union countermeasures to punish American states which voted for Trump; Wisconsin’s Harley Davidson motorcycles or Kentucky’s Jim Beam Bourbon. It’s a sandbox game of getting even ironically despite a growing U.S. and global economy.
Addressing the specific NAFTA issue, Canada’s Foreign Minister Chrystia Freeland views trade pacts as a “win-win” and not “a Zero-sum game; one guy wins one guy loses.” She stressed, “We really sincerely think a trade relationship is a Win-Win.”
When viewing the ultimate cost and effect of tariffs, the noted economist Milton Friedman put it best, “The benefits of a tariff are visible. Union workers can see they are ‘protected.’ The harm which a tariff does is invisible. It’s spread widely. There are people that don’t have jobs because of tariffs but they don’t know it.”
The game is on.
