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Trump’s trade policy needs to be implemented now

December 13, 2017

When asked recently about the ongoing NAFTA re-negotiations, President Trump said: “Right now, Canada and Mexico have such a great deal that it’s very hard for them to get used to the fact that it can’t be that way anymore.”

[Kevin Kearns | December 13, 2017 | The Hill]

Trump is, of course, correct. But it’s not just Canada and Mexico that have grown used to U.S. acquiescence and inaction in the face of bad deals and unfair foreign trade practices. It’s also China and the rest of the world that take for granted the ease with which they raid the American market and put U.S. manufacturing firms out of business.  

The president, however, is apparently stalled in implementing many of the policies he championed during the 2016 campaign and the start of his presidency — when he called for tariffs on offshoring companies and for China to be designated as a currency manipulator. 

Trump has signed executive orders requiring studies on America’s trade deficit and China’s forced transfer of intellectual property from U.S. firms. And he initiated Section 232 national security investigations into the health of the domestic steel and aluminum industries, which are under attack by predatory foreign competitors.

But nothing has happened yet.

Why not? The unfair practices the president wants to curtail continue unabated. So far, America’s trade deficit has climbed during his first year by $34.5 billion or 9.3 percent overall, and by $16.8 billion or 6.4 percent with China in particular.

In the case of the steel industry, foreign steel is surging into the U.S., with year-to-date imports up 19.4 percent over the same period in 2016. Finished steel imports — those with the highest value-added — now account for 28 percent of the domestic market. 

Global steel overcapacity, much of it Chinese, is estimated to be 700 million metric tons — more than six times total U.S. capacity. Longstanding international discussions have been ineffective regarding any significant reductions in overcapacity.  

Further, China’s promises to address its bloated, state-owned steel industry have proven hollow. That means Beijing and other foreign governments continue to protect their inefficient steel industries and foist factory closings and job losses onto U.S. businesses and the thousands of hardworking Americans the president said he would champion.

The Section 232 steel investigation is long since finished. Why hasn’t the president acted? 

Here’s part of the problem: When the steel report was sent around inside the administration for comment, some of the president’s globalist-minded advisors objected, fearing retaliation by foreign governments.

The Defense Department in particular thought that corrective action by the president could alienate allies — regardless of the damage that these same allies are doing to the U.S. industrial base. In effect, these advisors recommend protecting rather than confronting countries that have grown comfortable living off the U.S. market through unfair trade practices.

Another part of the problem: Consumers of steel products in the United States have also grown so accustomed to the artificially low prices of imports that they squawk the minute the president tries to stem the illegal practices harming American manufacturing. Domestic companies using imported steel try to make a case that tariffs would raise their prices and squeeze their profit margins.

U.S. Secretary of Commerce Wilbur Ross addressed steel consumers’ opposition at a November conference: "As to the fact that there are more users than there are makers of steel — that’s absolutely true — but there's not any reason to think that the consuming industries deserve dumped product. And that's what a lot of them have been living off of — subsidized, dumped product.” 

Ross’ criticism strikes at what has become a too common political business model: import-dependent U.S. companies assisting foreign entities in crushing U.S. manufacturers by selling or using competing, subsidized, underpriced foreign goods.

According to Ross, “That’s not a valid basis to build a business. So, unless you adopt a theory that we should let everything be subsidized and come in and destroy all of our industry, then you have to draw the line somewhere.”

It’s high time that Trump follow through on his own analysis and that of his Commerce Secretary and draw a bright line against those foreign companies and nations used to living off of unfair foreign trade practices. He should put a stop to foreign pillaging of the U.S. market — whether directly or through complicit American intermediaries. Presidential action should begin by taking up the Section 232 report and imposing sanctions on dumped foreign steel, and continue until all the multiple, unfair practices hammering American producers are put to a stop. 

Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.


Showing 6 reactions

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  • Jim Crawford
    Interesting, so if I told you that manufacturing flatware using casting and forging techniques had been successful for over 200 years, but that every firm in the industry went broke trying to perfect 3 dimensional printing technology over the last 50 years, you would hope they would finally figure out how to use 3D?

    Similarly, Congressional tariff legislation worked fine for about 150 years, but now we have to somehow fix macroeconomics?

    The point I am trying to get to here is that you do know something and should be able to petition your elected representatives to fix the problem. You should not believe you are ignorant because you do not have a PhD in economics!
  • Gregory Owens
    James, I believe that the United States needs a rational trade strategy that addresses our national interests and the interests of the American people, particularly the middle class. Every other country from Germany to China has one. Unfortunately we have been mired in a dreamworld of so called free trade which only exists in theory and in certain circles of U.S. politics. Our country has been run by “globalist zombies” who live in this theoretical dreamworld and the result has been catastrophic for our manufacturing sector from steel to dog bones. 232 is a good start but much more needs to be done. I might add that looking backwards is not the answer. We need to look forward, eyes wide open and re-establish the United States as a manufacturing powerhouse. Currency, tax, bad trade deals, cheating on those trade deals all need to form a balanced approach towards resolving the issue. But what do I know, I’m just a lowly flatware maker! Have a great weekend!
  • Jim Crawford
    Greg,

    Thank you very much for your thoughtful response. I too am a strong supporter of the CPA and its macroeconomic policy proposals.

    Given that, what puzzles me in your response is reference to “legislation”, as the intended target of macroeconomic proposals is whatever Administration happens to be in charge; and hence reversible by the next Administration. Moreover the trade remedies afforded by unfair trade judgements automatically sunset after a few years.

    I am also skeptical that there are any “silver bullets” with regard to international trade. First, historically speaking, the problem has bedeviled industrial economies around the world for centuries. And, second, as the old adage goes “there is always another way to skin a cat.”

    So what I am curious about is the extent to which you would support legislative action to address the problems of the specialty metals industry and their customers? Would you, for example, be interested in having Congress put long-term tariffs / quotas in place as a matter of industrial policy? Thus, regardless of whether the trade in specialty metal products was “fair” or not, the industry would receive preferential status.

    This is the way the United States employed tariffs from Alexander Hamilton’s “Report on Manufactures” until the mid 20th century. So I wonder why the CPA and its members do not seem to be interested in pursuing it.
  • Gregory Owens
    James, Not only are we familiar with the AK and ATI steel mills we use their products! I am a proud and active member of CPA and very much appreciate their efforts on a macro level. One of the main initiatives that they support is the realignment of the U.S. dollar to a lower and fair value in the international marketplace. This is perhaps the one “magic silver bullet” that could fix things for all of us as it fixes the situation at all levels from production of raw materials to finished consumer goods. The other big focus of CPA is tax reform and the basic recognition that taxing production, productivity and capital is a bad idea and should be scrapped in favor of taxing consumption. The rest of the world, from Germany to China, has figured this out, for some reason the United States has not. One of the main reasons why they have all of the manufacturing jobs and we do not. My issue with 232 specifically is one that shared by many. Just trying to get my voice heard here so that perhaps we can have a step 2 in trade legislation which supports companies like mine who are trying to compete in a very convoluted world when it comes to trade policy.
  • Jim Crawford
    Hi Greg,

    Here in Pittsburgh stainless steel products are an important part of the business model for both AK Steel and ATI. So I am curious if you happen to buy from either of them?

    I would assume that your profit margins are already fairly tight because your foreign competitors can acquire stainless steel at prices even lower than you can now, let alone after tariffs would raise domestic prices.

    If you look at the complete business models of AK and ATI you will, of course, find that they service many different product manufactures in addition to, perhaps, flatware. So, I assume you would support the U.S. implementing a specific industrial policy that defended both the manufactures of stainless steel and a wide range of their end product markets?

    I ask this because the CPA does not support the development of specific industrial policies. Rather, it only promotes macroeconomic financial policies and specific tariffs based on the notion of “unfair” trade. This approach, unfortunately, leaves the smaller downstream manufacturers like you to fend for yourself by pursuing your own “unfair” trade tariffs, which is an expensive and time consuming ordeal.

    I would certainly encourage you to contact Michael Stumo directly to discuss this issue with him, if you are interested in having the CPA develop industrial policy proposals.

    Best wishes for a prosperous and joyful new year!
  • Gregory Owens
    I agree and fully support the position of CPA on this issue, with one addition. As a manufacturer of stainless steel flatware we have made deliberate choice to use only stainless steel that is melted and manufactured in the United States. Obviously our competitors in China use the subsidized Chinese steel, which incidentally is even cheaper over there. Here is our fear. If 232 is enacted, which it should be, the result will be increased sales for U.S. steel mills and higher prices in the American marketplace. That is the point……… So where does that leave us? With stainless accounting for about 25% of my total cost a 20% increase means a 5% increase in the cost of my flatware. There will be no increased cost in China. If I raise my prices I will lose market share. The alternative is to lower my margin. That means a 5% reduction in the bottom line of our company. How many companies do you know of that can afford to suffer a 5% reduction in net income? These are real world numbers folks!
    What I would propose is a simple mechanism for adding a “steel factor duty” to finished goods as well as raw material. In the case of flatware it would be very easy to estimate the percentage of value of the stainless steel in the knives, forks and spoons. The same 232 duty could be added to the steel portion of the cost and the duty applied to the finished product. Perhaps this is too much to ask for but, if we do not protect the end user, 232 may result in us shooting ourselves in the foot or cutting off our nose to spite our face, whichever cliché you prefer. While I understand Wilbur Ross’s argument about those domestic manufacturers who are using cheap imported steel to compete he has forgotten about those of us who do support American Steel. We are the ones that ironically have the most to loose if 232 is not expanded to cover finished goods.