What Still Matters: Steel Tariffs & Unfair Free Trade

By The Policy Circle Team

International trade is a powerful tool. The world saw this in 1944, when the United States gathered the war-torn Allies at Bretton Woods and explained a plan to open up U.S. markets and secure international shipping lanes by using the U.S. Navy to protect trade between countries.

The power of international trade was made crystal clear when countries across the globe quickly rebuilt their economies on the back of this access to international markets.

This was expensive for the U.S., but it supported our geopolitical goals at the time: to isolate the Soviet Union and allow the U.S. to deal with the U.S.S.R on our terms. (The Accidental Superpower by Peter Zeihn)

Why the Focus on Steel?

Our nation still embodies an emotional connection to steel. According to NPR, “Steel has long occupied a special place in the way the U.S. and other nations see themselves. It’s both a source of national pride and a symbol of a country’s industrial might.”

And China isn’t playing fair. The United States is not alone in accusing China of over producing steel and dumping it in international markets, which drives down prices and harms steel workers around the world.

Why does China keep over producing steel? As expert Jason Kaplan of IHS explained on CNBC in 2016, they are trying to protect their workers. China “should’ve tackled (steel) output years ago. The pollution from steel production is significant, the overcapacity is significant and they’re losing money every time they produce steel. But unfortunately, it employs so many people and it’s just not possible to cut it back and have these people roaming the streets.” (CNBC)

These are important facts to know:

• The United States is the world’s biggest steel importing nation, buying about 35 million tonnes of raw material in 2017. (Reuters)
• China now produces about half of the world’s steel. It single-handedly churns out as much steel in one year as the entire world did in 2000. (NPR)
• The top five countries for U.S. steel imports are: Canada, Brazil, Korea, Mexico, and Russia.
• China is 11th on the list; this is because the U.S. has long imposed duties on Chinese steel.
• Since steel is a global commodity, an oversupply in one place impacts all steel producers. (NPR)

*see hyperlinked sources at bottom of post

Lessons from the past – Tariffs on steel are not new, former President Bush’s 2002 steel tariffs are the latest example. The Tax Foundation is no fan of the current tariffs, and points to research finding “that in 2002, more American workers lost their jobs due to higher steel prices than the total number employed by the U.S. steel industry itself.”

Also, exemptions don’t jive with a global commodity. After a discussion of worldwide tariffs, the U.S. carved out exemptions for Canada, Mexico and Australia (with the EU, Argentina, Brazil and South Korea recently added), which was lauded as helpful in the vein of not angering our allies. Yet, as the Tax Foundation notes, the carve out also undermines the ability of the tariff to reduce steel coming into the U.S.

The only way the local steel industry will increase competitiveness, which requires producing and selling more steel, is by reducing the cheaper steel that enters our markets. Tariffs on all steel imports will do that — exempting top trading nations will not do that.

Building a coalition of allies to address China’s unfair dumping, instead of  ‘going it alone’, is another proposed approach. As is waiting to see how the new corporate tax structure impacts the competitiveness of the U.S. steel industry.

And finally, many countries impose tariffs to protect local industries and commodities. For example, the European Union has a higher average tariff on non-agricultural products compared to the U.S and applies almost double the level of tariffs on agricultural products compared to the U.S. And the EU is not even in the top 20 highest applied tariffs, where Brazil, Argentina and India reside. (World Trade Organization)

So here we are.

As stated by the U.S. Secretary of Commerce, Wilbur Ross, “…In a truly fair world, we’d have free trade. But it doesn’t exist. It’s only degrees of unfair trade and we’re trying to level that playing field.”

Now it is a waiting game. Here are some questions to ask and issues to look for as this topic fades from daily media coverage:

• What countries are truly impacted once final tariffs are applied?
• How U.S. steel production and jobs are impacted?
• If retaliation is waged by China, the EU or others?
• And generally – who takes the next step in the strategic game of international trade.

What Still Matters is provided by Kristin Jackson, who serves as policy editor for The Policy Circle. Kristin is a middle-of-America native with a decade of experience working on policy in our nation’s capital.

The Policy Circle is a 501(c)3 that provides a fact-based, nonpartisan framework that inspires women living in the same community to connect, learn about and discuss public policies that impact their lives. Women across the nation are taking a leadership role in public policy dialogue on what human creativity can accomplish in a free market economy.

Additional Sources:

Investopedia-Duties; Investopedia-Tariffs; See more here: The Basics of Tariffs and Trade Barriers