Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Trump Fails To Understand One Critical Thing—Our Trade Partners Have Options, Too

Economics / Protectionism Jul 26, 2017 - 02:04 PM GMT

By: John_Mauldin

Economics

Despite heavy opposition, Trump is more insistent than ever on imposing quotas or tariffs on steel imports.

However, it makes a big difference whether the administration decides to go with quotas on current steel imports or initiate a tariff. Quotas would be harmful, but a tariff would be far worse.

Let’s look at the numbers to see who exactly would actually be damaged.


Why Tariffs on Steel Imports Don’t Make Sense

First, for all the talk about trade deficits with China, we don’t import all that much steel from China. In fact, China isn’t even in the top 10 countries that we import steel from (see below).

Source: Financial Times

Secondly, using national security as an excuse to impose tariffs is really fraught with potential problems. The Financial Times report (well worth reading), in which our chart appears, notes two:

The first is that in the trade realm, invoking national security to erect barriers is considered a nuclear option. World Trade Organization rules include a national security exemption designed to be used in times of war. But many experts believe the forthcoming steel move would flout those rules and would thus be challenged by other WTO members. Such a challenge in itself could be dangerous. It would be the first real test of the WTO’s national security exception. Were the WTO to find against the US and the Trump administration to ignore that decision, it would be a huge blow to the WTO’s credibility. Were the WTO to find in the US’s favor, experts fear it could give carte blanche to all WTO members to invoke national security more often, leading to a new protectionist free-for-all. 

The second is that the US is the world’s largest steel importer and a broad move on steel would probably hit US allies such as Canada, Germany, South Korea, and Mexico far more than China, its real intended target. In an unusual move, it has prompted NATO allies to complain and to try to have the Pentagon lobby on their behalf.  It also could provoke a messy trade war with other countries feeling compelled either to impose their own national security restrictions on steel imports or to retaliate against the US in other ways. 

The third reason to oppose tariffs is that clamping down on steel imports threatens considerably many more jobs than “protecting” the steel industry from foreign competition can save. As Dan Pearson of the Cato Institute noted recently: “Steel mills employ 140,000 workers.”

“Manufacturers that use steel as an input employ 6.5 million, 46 times more.” Steel mills’ $36 billion of productivity in 2015 represented just 0.2 percent of US GDP, Pearson explains, while the economic value contributed by US firms that use steel was 29 times larger.

We actually have a recent case study. George W. Bush approved steel import tariffs of 30% in 2002. What happened? Two hundred thousand American workers lost their jobs (see the chart below).

Source: Heritage Foundation

Scores of different types of steel are used for special manufacturing processes and equipment. The US doesn’t manufacture everything we need or have the capacity to do so. Thus, a tariff would increase costs to consumers without doing one thing for steelworkers.

Much Has Changed in 35 Years

Yes, the number of American steelworkers is down from 500,000 to 147,000 in the last 35 years. 

Source: Heritage Foundation

As in so many industries, we simply don’t need the number of workers that we used to. Steelworkers, whose wages have tripled, are producing five times the amount of steel per hour worked as they did 35 years ago.

China is already working to curb its steel production capacity, as demand for steel is flat to down. Now I agree that Chinese overproduction is forcing global steel prices down, but do we really have a problem when gasoline prices go down? Do we feel sorry for the oil companies?

No doubt American steelworkers and steel companies would love to see barriers to entry for their product. I bet McDonalds would like to have Jack-in-the-Box stores banned, too. Ultimately, higher prices offset the theoretical benefits of a steel tariff or quota.

You and I are the ones who pay.

“Buy American, Hire American” May Backfire

The federal government has other ways to punish foreign competitors. In April, President Trump visited the Wisconsin headquarters of Snap-on Tools, where he signed a “Buy American, Hire American” executive order. The bureaucracy is now working to implement the order.

By enforcing these laws, President Trump can redirect billions of dollars in spending from foreign companies to US suppliers—assuming US suppliers exist. They may not, in some cases, and they may cost more if they do.

Defense contractors will face some serious headaches. Other trade actions are popping up, too.

Boeing has asked the government to investigate what it considers to be unfair competition by Bombardier, a Canadian aircraft manufacturer. If Boeing succeeds in sidelining Bombadier, other US companies are likely to make similar claims.

But truth is, dozens of countries manufacture major parts of those Boeing airplanes; Boeing doles out contracts to other countries in order to encourage them to buy the planes. Many of those components are made in Canada. And I will bet you a dollar to 47 doughnuts that significant components of Bombardier planes are made in the United States by US workers.

It behooves us to remember that Canada and all our other trade partners have options, too. 

Join hundreds of thousands of other readers of Thoughts from the Frontline

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in