Steel industry tries to soften rigid US stance

The Trump administration is expected any day now to make its long-awaited decision over whether to slap tariffs on steel imports. Doing so would be a provocative move that could simultaneously lift the spirits of President Donald Trump’s most ardent supporters while angering trade partners.

The tariffs could very well provoke a global trade war that could make all sides poorer. It’s an unusual time for a protectionist retreat by the US as a number of major industrialised countries work on their own free trade pacts. Europe and Japan reached a landmark free trade agreement before the G-20 summit and Mexico and China have been mulling their own deal.

Trump and his economic team delayed a decision on steel in recent weeks as the president weighs conflicting counsel from factions of his nationalist and globalist advisers. For weeks, trade lawyers, industry leaders and members of Congress have been anxiously awaiting the recommendation from the Department of Commerce. They view it as a moment that will illuminate whether Trump is ready to make good on his campaign promises to protect flagging American industries with tariffs.

Among those most on edge are economists, many of whom have been uneasy about Trump’s unorthodox views on trade because they have seen the damage from such actions before. They hope the president is bluffing.

“If he actually pulls the trigger, it could be highly disruptive to world trade,” said Stephen Moore, a Heritage Foundation economist who advised Trump’s presidential campaign and helped craft his economic plan. “It’s not even going to really work in terms of helping American workers.”

In April, Trump signed an executive order calling for a sweeping investigation by the Department of Commerce into whether steel imports were harming national security, employing a rarely used section of the Trade Expansion Act of 1962. The findings would give the president backing to impose import restrictions or tariffs on foreign-produced steel.

The US imported 30.1 million metric tonnes of steel last year, making it the world’s largest steel importer, according to the International Trade Administration. Canada, Brazil and South Korea are the three biggest exporters to the US.

To those Trump advisers who are fearful about the fallout of steep steel tariffs, history is the most compelling argument for holding their fire. In 2002, another Republican president took action to protect the steel industry in the face of excess production of steel around the world. It did not end well. President George W. Bush imposed tariffs of up to 30 per cent on most types of steel imported from Europe, Asia and South America for three years, ostensibly to give the domestic industry time to stabilise.

The move was quickly challenged at the World Trade Organisation, which later declared that the tariffs were illegal. The European Union was given the authority to impose $2 billion in retaliatory sanctions against American products.

Europe threatened to target exports from states such as Michigan and Florida — crucial political battlegrounds — and 21 months after levying the tariffs, Bush backed down and rescinded them. Those who worked in the steel industry were angered that a president who had promised to protect them had buckled under international pressure.

Economists who were embroiled in that episode, and those who recall it ruefully, view it as a cautionary tale for Trump. “There were many more workers who used steel to make things in the US than who actually made the steel,” said Phillip L. Swagel, an economics professor at the University of Maryland who was a senior economist for international trade during Bush’s first term. “Many more communities have the potential to be affected by higher prices for steel.”

However, the perceived political need to do something overrode economics. Studies conducted after the tariffs were lifted showed that while they were in place, they led to higher steel prices and job losses in other machinery and metal equipment industries. Domestic steelmakers also cut costs and consolidated.

A report commissioned by the Consuming Industries Trade Action Coalition found that higher steel prices led to a loss of 200,000 jobs across the country in 2002 and $4 billion in lost wages. While the struggling steel industry is craving protection from global competition, other industries have warned of the potentially harmful ripple effects.

In late May, the Truck and Engine Manufacturers Association warned in a letter to the Department of Commerce that steel tariffs would mean higher prices for their customers. “Protecting and providing for the defence of the US is always of the highest priority,” the group wrote. “So too, however, is ensuring the strength and competitiveness of our national economy.”

Tariffs would also have a disruptive impact on global supply chains. It is possible that a blanket tariff could lead to a global glut of steel, as exporters around the world flood other markets to make up for the diminished market in the US.

So far Trump has lived up to his reputation for being unpredictable when it comes to trade. He threatened to terminate the North American Free Trade Agreement, before reversing himself and agreeing to renegotiate its terms. He withdrew from the Trans-Pacific Partnership, but Wilbur Ross, his commerce secretary, has since praised the defunct pact as a strong starting point for future negotiations.

Trump’s aides have offered mixed signals about how he will handle steel imports, suggesting on some occasions that he prefers a politically satisfying blanket tariff and at other times hinting that he will take a more targeted approach. The president offered little clarity, when he wrote cryptically on Twitter: “Don’t like steel & aluminium dumping!”

Moore, the Heritage Foundation economist, said that during a visit to South Korea he found a palpable anxiety about the possibility of Trump imposing a hefty steel tariff. For a country that is the world’s third largest steel exporter, it would be a damaging proposition.

But Moore was optimistic that Trump would ultimately settle on a more temperate and targeted approach, and that the threat of tariffs would win the US concessions at the negotiating table, with the bluster leading to a better deal. “In the end I think Trump’s bark will be worse than his bite on trade,” Moore said, hopefully.

— New York Times News Service