Quite the uproar was created recently with the announcement by the current occupant of the Oval Office of his intention to impose an across-the-board 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. His stated target is China for “dumping” steel on the U.S. market.
“Dumping” is actually a formal term and refers to a product being “dumped” on a foreign market by selling it at less than fair market value as a means of cornering the market in that foreign country. The price of the product in the importing country is far less than the price of the same product being sold domestically, in this case, China.
Back in the 1980s, the threat to our domestic steel industry was Japan. Trump, in his wisdom, is claiming that China is currently dumping steel on the U.S. market and his across-the-board tariffs are intended to address that unfair practice. Problem is that China currently accounts for only about two percent of our imported steel, so the across-the-board action is actually hurting allies such as Canada, which accounts for almost 50 percent of our imported steel.
A few months back, Commerce Secretary Wilbur Ross discussed imposing anti-dumping duties on Canada for its exports to the United States of softwood lumber. Anti-dumping duties are targeted to a specific country to counter the effect of the less than fair market value pricing. It seems baffling that if Chinese steel exports were the true culprit, then imposition of anti-dumping duties should have been the preferred course of action, if applicable.
Imposing or raising tariffs on imported products are designed to protect a specific industry. The United States Customs Service was created in 1789 to collect tariffs on foreign goods as a means of protecting the fledgling industries of the newly-created nation. In today’s global economy the rules are a bit different.
For one thing, protecting our domestic steel industry comes with a cost. Making steel more expensive means prices go up on domestic products produced with steel such as automobiles. In addition, when we raise tariffs on imported goods, retaliation from our trading partners takes place on goods we export to them.
That is known as a trade war and in a trade war, no matter what Trump thinks, no one wins.
Think of all of the merchandise we import from China, which is basically every item in every Walmart across the nation. Now think what it would be like if, as a result of the trade war started by Trump, the prices of all of those Chinese-manufactured goods went up.
Now, all of what I just described could be classified as mere speculation on my part, but only if we did not have firsthand experience to turn to. Just so happens we do. On March 5, 2002, then-President George W. Bush announced his decision to “impose temporary safeguards to help give America’s steel industry and its workers the chance to adapt to the large influx of foreign steel. This relief will help steel workers, communities that depend on steel, and the steel industry adjust without harming our economy…The U.S. steel industry must use the temporary help today’s action provides to restructure and ensure its long-term competitiveness.”
The steel tariffs announced by President Bush ranged up to 30 percent. Sound familiar? Experience does serve a useful purpose, especially in the presidency. Since the current president is under the false impression he knows everything, factoring the results of past actions apparently is not factored into his decision-making.
The temporary tariffs announced by President Bush were supposed to remain in effect until 2005. As is currently the case with the Trump steel tariff, back in 2002 the reaction by the international community was loud and strong. Almost immediately after the Bush steel tariffs were announced, the European Union announced that it would impose retaliatory tariffs on the United States. If memory serves me correctly, the export of U.S.-grown bananas and oranges were just a couple of the products impacted.
In addition, a case was filed with the World Trade Organization by the European Union and soon followed similar suits by Japan, South Korea, China, Taiwan, Switzerland, Brazil (currently our second largest exporter of steel) and other trading partners. In 2003, the WTO ruled against the United States and authorized more than $2 billion in sanctions against the United States if the tariffs were not quickly removed. That penalty, by the way, was the largest penalty ever imposed by the WTO. Not surprisingly, the tariffs were soon withdrawn.
Now, of course, there is no reason to assume that the same fate will not await the current president’s attempt to impose steel tariffs, although it is worth considering that this same president’s record in court decisions has not been characterized by much success…Muslim ban, DACA end date, etc.
Moreover, the one thing that this president covets more than anything is the market response. Back in 2002, the announcement of the 30 percent tariffs on steel was followed by a stock market decline which saw a plunge in the Standard & Poor’s 500, a slump in the dollar and 10- year yields in bonds slashed in half.
History is worth noting and the history of steel tariffs should not be ignored even by this president. Further, any industry that needs as much protection over the many years as apparently does our steel industry may want to take a look at why the steel industries of other nations such as Canada seem to be competing quite nicely without so many protective measures.