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THE TRADE GAME

August 23, 2017

THE TRADE GAME

I am an honorary member of the United Steelworkers of America Union and am generally in favor of looking at Chinese (and other) imports of steel with a jaundiced eye for several reasons. Among others, I find the subsidization of the industry in China unsettling since it does not provide a level playing field vis a vis American steel in international or even domestic competition (the Oakland Bay Bridge was rebuilt after the earthquake with Chinese steel) but I think the greater and longer term problem in the industry is not only the fact that as of 2013  China now produces more steel than the rest of the world with 2013 production set at 822 million tons of steel per year but that it has a capacity to produce 1,106 million tons of steel per year. You can bet that China will do its best to match production with capacity and will increase its capacity to produce to provide for yet further production if it hasn’t already following my citation of the stale statistic of its production and capacity to produce in 2013.

What are the implications for the steel industries of the United States and other steel-producing countries given such enormous capacity of the Chinese to produce cheap steel? They will vary from one country to another, of course, depending upon the policies of such a particular country and how such countries play the trade game, ranging from protectionism to wide open markets. My union affiliate has decided to play the national security card, i.e., we must keep steel production in this country vibrant and alive because steel is a vital component in military applications and should not be farmed out to foreign producers since we need a reliable source of production within our borders in case of crisis or war. (Someone tell that to Boeing, the giant defense contractor, which outsources wings to China.)

This argument, while sounding superficially good, reeks of protectionism under the guise of “national security,” and while protectionism may in isolated cases be justified by the imposition of tariffs and other such means under the present system, I question whether the union’s definition of “national security” is appropriate in this case. I think it’s too limiting in scope. I think national security is much more than a military reference; I think national security also includes existential threats to our economy not only in steel but in other goods and services as well. I think when we “rally round the flag” of national security that we should include existential threats to our other industries, including steel. Protectionism? Hardly. Our continued right to exist supersedes all other considerations and we need not be brought down by trade niceties.

A Cold War piece of legislation known as the Trade Expansion Act of 1962 contains Section 232, a little-used weapon in our trade arsenal last invoked by George Bush, which gives broad powers to the president to adjust imports, through tariffs or other means, if excessive imports are found to threaten U.S. national security. (Bush’s investigation into imports of iron ore and semi-finished steel determined that national security was not threatened, and he imposed no penalties.) Trump has ordered an investigation under Section 232 which is still in progress. I expect it will lead to a similar result due to our currently undersized definition of “national security.”

The usual suspects have made the usual arguments for and against imposition of Section 232 responses. Critics claim that broad tariffs against steel imports would lead to higher steel prices, which could hurt automakers and other steel users. They also argue that such action could spark international trade disputes, and that other countries could retaliate by barring U.S. exports for national security reasons. They also note that dumping of steel to another country causes over-capacity in the country being dumped upon and that such countries then dump as the saga continues. There is talk that conversations within the Trump administration suggest a hybrid solution; that buyers would be required to pay duties on foreign-made steel after a certain quota is reached. This, in my view, is just another way to play the protectionist game in order to avoid using the dreaded word “tariff.”

On the other side, Scott Paul, president of the Alliance for American Manufacturing, calls China’s “massively subsidized and grossly over-scaled steel industry” an “existential threat to our own domestic makers.” Our union president, Leo Gerard, says that our steel industry is under attack from “unfair, illegal, predatory and protectionist policies” with China the main offender. I think both sides overstate their positions for effect but understate just what “national security” as a broader application means. In other words, I favor the union’s stance on this issue, but with a broader application of its rationale to include protection of all domestic industries from predation and protectionist policies of China and others.

So if we decided to adopt trade restrictions on the import of all goods and services, so what? Higher prices? No problem – we would, released from cheap downward wage pressures we also import from cheap labor economies, have the additional wherewithal to pay such prices. Retaliatory tariffs and restrictions on the import of American goods? Not likely, not with our huge marketplace and demand for imported goods and where we could again bring retaliatory pressure against such offending foreign exporter with additional restrictions.

Bad for the country? Then consider this: we are running an 800 billion trade deficit with the rest of the world, mostly with China, helping them subsidize their industries, while at the same time importing their cheap labor regimes to this country which smothers our domestic demand, keeps us on the edge of recession, and which gives our politicians an excuse to continue their views that such a race to the bottom in wages can only be countered with policies that foster ongoing wage inequality.

Bad for the country? Maybe it would be good for the country. After all, the newly minted term “global economy” doesn’t mean that we have to abandon our policies to finance the policies and budgets of foreign countries. I consider the 800 billion a year to be what it is – foreign aid wrapped up in trade treaties – money that comes out of our treasury to those with whom we trade, never to be recovered, and I here note that while Wall Street banks and their handmaiden multinational corporations find the current situation profitable all wrapped up in “free trade” and other such mythology, their executives and shareholders only comprise a minute percentage of America, and that it is time America and its people be considered.

We can start with saving 800 billion a year and that, along with the big increase in aggregate demand due to an end or lessening of wage inequality, assures that our economy will do well. Who says foreign trade is essential to domestic prosperity, other than the Chinese and other recipients who do well thanks to Uncle Sugar’s largesse? It seems to me that when a trade system is costing you 800 billion per annum that you rid yourself of such a catastrophe, not just in steel but across the board, and that if we wish to engage in trade treaties that we deal with each nation individually and not through multi-nation agreements, always looking to see how such agreements affect our trade balance, and on this particular issue, I am to the right of Trump, who is playing the trade game for political profit while my sole concern is that of America and its people and their futures. Such a reform will take time and it won’t come soon in the face of propaganda by the status quo, but it is doable, so let’s go for a clean re-start.   GERALD     E

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