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Can anti-China tariffs revive American steel?

Sure, Donald Trump mused about returning to the gold standard during the campaign. But as president, he’s really more of a steel bug than a gold bug. “American steel” to be specific. To Trump, the decline in steel production and steel worker’s jobs are emblematic of lost American greatness. And when Big Steel is back, so will be America. As Trump put it last summer: “We are going to put American-produced steel back into the backbone of our country. This alone will create massive numbers of jobs.”

U.S. President Donald Trump speaks before signing a directive ordering an investigation into the impact of foreign steel on the American economy in the Oval Office of the White House in Washington, U.S., April 20, 2017. REUTERS/Aaron P. Bernstein

So with his First 100 Days almost complete, Trump is looking to make a down-payment on his American steel promise. Reuters reports:

President Donald Trump launched an investigation on Thursday to determine whether Chinese and other foreign-made steel threatens U.S. national security, raising the possibility of new tariffs and triggering a rally in U.S. steel stocks. U.S. Commerce Secretary Wilbur Ross cast the decision to initiate the probe as a response to Chinese exports of steel into the United States reaching the point where they now have 26 percent of the market. Chinese steel imports are up nearly 20 percent in the early months of this year alone, he said. … Trump signed a directive asking for a speedy probe under Section 232 of the Trade Expansion Act of 1962 at a White House event that included chief executives of several U.S. steel companies. The law allows the president to impose restrictions on imports for reasons of national security. … The Commerce Department will have 270 days to complete the probe. Ross said he expected it to be done much sooner. Trump’s directive asked that the investigation be conducted with all deliberate speed. Ross, a former steel executive, said the investigation was “self-initiated.”

Guys, it’s called supply chains. And steel is an intermediate good moving through those chains. As Douglas Irwin writes the new Foreign Affairs: “Any import restriction that helps some upstream producers by raising the prices of the goods they sell will hurt downstream industries that use those goods in production. If a tariff raises the price of steel to help U.S. Steel, it will hurt steel consumers such as John Deere and Caterpillar by raising their costs relative to those of foreign competitors.”

I mean, just compare the producers and users of steel. As I have written:

Now the entire US steel industry directly employs just 142,000 American workers, according to the American Iron and Steel Institute. … Which is not to say it is an insignificant industry.  Indeed, the total value-added output of the entire US metal manufacturing industry is some $60 billion, employing some 400,000 workers. … But here’s the thing: the manufacturers that use steel generate nearly $1 trillion in value-added output, according to the Cato Institute, using government data. And they employ some 6.5 million people.

Attempts to temporarily help some workers will end up hurting others, Many others. And it is unlikely even to create many blue-collar domestic jobs in what has really become a technologically advanced industry. But still there remains the issue of Chinese state subsidies for its steel industry and its dumping of surplus steel. Again, Irwin:

So how should the United States respond to, for example, Chinese steel subsidies? Imposing antidumping duties is not the answer, since they would fail to solve the underlying problem of excess capacity and would punish steel-consuming industries in the United States. Paradoxically, however, threatening reprisals of some sort may be the answer; politely asking China to cut back its steel subsidies would accomplish nothing. Confronting unfair trade practices with the threat of retaliation is not protectionism in the usual sense. Instead, it represents an attempt to free world markets from distortions. In order to return trade to a market basis, Washington may have to threaten trade sanctions, some of which might have to be carried out for the threats to gain credibility. This process will no doubt be disruptive and controversial, but if handled skillfully, the end result could make it worthwhile.  … Once again, the 1980s offers useful lessons. In 1985, Reagan used the power granted to him under a provision of U.S. trade law known as Section 301 to attack unfair foreign trade practices, such as the barring of U.S. products from certain markets. Although the U.S. action prompted bitter foreign protests, Arthur Dunkel, the Swiss director general of the General Agreement on Tariffs and Trade (the predecessor to the WTO), later admitted that it was one of the best things the United States had ever done for the multilateral trading system: it helped unite the world behind an effort to strengthen the rules-based system in the 1986–94 Uruguay Round of international trade negotiations. The WTO’s dispute-settlement system has proved remarkably successful and should be supported, but it may not be capable of handling every type of trade disagreement.

But even if what we are seeing from Trump is a negotiating tactic rather than an economic strategy, it’s important to think out the end game and to have realistic expectations of what can be achieved.

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