By Robert Romano
President Donald Trump is keeping the promise he made in 2016 and is protecting the American steel industry, instituting a 25 percent tariff across the board on steel imports. No nations are excluded.
The move comes as the U.S. imported 34.5 million metric tons from around the world, a 16 percent increase from 2016 when it was 30 million metric tons.
In comparison, while America’s steelworks are heating up once again, they comparatively only grew by 3.4 percent in 2017 according to the International Trade Administration to 81.6 million metric tons from 78.5 million metric tons.
This flooding of U.S. markets is designed to drive down prices here by dumping subsidized steel products here, making it harder for domestic producers to maintain market share. The imported steel is much cheaper.
In the event of war, keeping U.S. productive capacity at high levels is critical, to prevent shortages at a time when production would be needed the most and imports cannot be guaranteed.
As the Commerce Department noted in its recommendation for instituting the tariffs: “Domestic steel production is essential for national security applications. Statutory provisions illustrate that Congress believes domestic production capability is essential for defense requirements and critical infrastructure needs, and ultimately to the national security of the United States.”
That is one reason the Commerce Department in its findings suggested that the U.S. use at least 80 percent of its annual capacity including imports. Right now, that number is only at 72.3 percent because of the flooding of domestic markets. The report found “Utilization rates of 80 percent or greater are necessary to sustain adequate profitability and continued capital investment, research and development, and workforce enhancement in the steel sector.”
In other words, allowing rampant flooding of U.S. markets by foreign steel is not only harming a domestic industry’s profitability, in the process it is weakening that industry’s ability to defend the national security of the United States in the event of war.
Here, the circumstances surrounding the tariff matter a lot. Allowing foreign dumping weakens the entire sector and makes sustaining a war effort harder. To be a strong nation, we need a vibrant domestic steel industry.
Foreign dumping of steel is eating the domestic market share, and in the future it could harm us at a time when we can afford it the least. We never know when war will come.
Even if the tariffs resulted in less consumption of imported steel, the U.S. steel industry appears ready to pick up any slack. Indeed, the whole point is to stimulate demand for U.S.-made steel.
Yes, it’s a tax. But there are few other tools available to address increasing dependence on foreign steel and foreign dumping onto domestic markets. This happens to be one of the tools that’s actually in the Constitution.
To ignore violations of trade agreements does not strengthen free trade, it weakens the argument for it. Again, it is not conservative to allow for rampant breach of contracts, it is corrupt.
Critics will argue that the tariffs will result in reciprocal tariffs on U.S. steel. But we import far more than we export, as the rest of the world does not return the favor. All it does is send its subsidized steel here. It’s not nearly as interested in buying ours.
Others will complain that taxing Canada and Mexico will harm North American Free Trade Agreement (NAFTA). 16 percent of U.S. imports of steel come from Canada. 9 percent comes from Mexico.
However, if every nation was not included in the tariff, there would be a perverse incentive for companies to ship their steel to Canada and Mexico, and then dump it here to avoid the tariffs.
This is something that has already been seen in recent years with dumping of aluminum in Mexico by China to circumvent NAFTA.
In fact, China currently has a 50 percent global marketshare in steel. How much of that excess capacity is being passed through global markets and into U.S. markets via free trade zones? It is hard to say, since such abuses are hard to catch. Steel is often recycled, making it tough to trace its origins when imports finally arrive here. With an across-the-board tariff, any incentive for such shenanigans ceases.
Moreover, one wonders what other domestically produced materials needed for national security the U.S. should outsource? Rare earths? Already done. Uranium? We’d be stupid to become dependent on foreign sources of the commodity needed for nuclear weapons.
Why should steel be treated any differently? Having a robust, domestic and, yes, profitable steel industry is critical to defending this nation. Letting foreign economies dump here without reciprocal action constitutes a threat to national security.
Others still will raise objections simply out of general opposition to any and all tariffs. However, they might consider that it is reciprocity in reducing tariffs that has led to freer trade historically. Dumping, subsidies and tariffs beget more tariffs. Which is key to point out. These tariffs are in response to actions by foreign trade partners. They’re the ones provoking us.
The tariff is expected to raise $9 billion in revenue and increase U.S. domestic market share. The Commerce Department report predicts, “According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 24 percent tariff on all steel imports would be expected to reduce imports by 37 percent (i.e., a reduction of 13.3 million metric tons from 2017 levels of 36.0 million metric tons). This tariff rate would thus result in imports equaling about 22.7 million metric tons, which will enable an 80 percent capacity utilization rate at 2017 demand levels (including exports).”
Overall, the 25 percent steel tariff ends what amounts to $8 billion of foreign aid every year — when the value of the decreased imports are taken into account — to other countries to increase their global market shares in one of the world’s most valuable commodities.
President Trump promised reciprocity in trade. Sometimes that means tariffs when trade partners cheat. If U.S. trade partners don’t like it, they might consider not dumping subsidized steel and aluminum here in violation of U.S. law. To keep America safe, we need to keep American steel strong.
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Robert Romano is the Vice President of Public Policy at Americans for Limited Government.