Trump himself has already undercut his national-security claim by exempting most major exporters of steel to the US. Canada, for example, is exempted on the condition of a successful renegotiation of the North American Free Trade Agreement,
.. effectively threatening the country unless it gives into US demands.
But there are a host of issues in contention, involving, for example, lumber, milk, and cars. Is Trump really suggesting that the US would sacrifice national security for a better agreement on these minor irritants in US-Canadian trade? Or perhaps the national-security claim is fundamentally bogus, as Trump’s secretary of defense has suggested, and Trump, as muddled as he is on most issues, realizes this.
.. As is often the case, Trump seems to be fixated on a bygone problem.
- .. Recall that, by the time Trump began talking about his border wall, immigration from Mexico had already dwindled to near zero.
- And by the time he started complaining about China depressing its currency’s exchange rate, the Chinese government was in fact propping up the renminbi.
- .. Likewise, Trump is introducing his steel tariffs after the price of steel has already increased by about 130% from its trough, owing partly to China’s own efforts to reduce its excess capacity.
.. But Trump is not just addressing a non-issue. He is also inflaming passions and taxing US relationships with key allies. Worst of all, his actions are motivated by pure politics. He is eager to seem strong and confrontational in the eyes of his electoral base.
.. what matters is the multilateral trade deficit, not bilateral trade deficits with any one country.
.. Reducing imports from China will not create jobs in the US. Rather, it will increase prices for ordinary Americans and create jobs in Bangladesh, Vietnam, or any other country that steps in to replace the imports that previously came from China.
.. In the few instances where manufacturing does return to the US, it will probably not create jobs in the old Rust Belt. Instead, the goods are likely to be produced by robots, which are as likely to be located in high-tech centers as elsewhere.
.. the Republican Party, standing in solidarity with Trump, seems suddenly to have forgotten its longstanding commitment to free trade, much like a few months ago, when it forgot its longstanding commitment to fiscal prudence.
.. while Trump claims to be looking out for US industrial workers, the real winner from “successful” negotiations – which would spur China to open its markets further to insurance and other financial activities – is likely to be Wall Street.
.. The EU, for its part, seems highly concerned with protecting data privacy, whereas China does not. Unfortunately, that could give China a large advantage in developing AI.
.. In the years ahead, we are going to have to figure out how to create a “fair” global trading regime among countries with fundamentally different economic systems, histories, cultures, and societal preferences.
The danger of the Trump era is that while the world watches the US president’s Twitter feed and tries not to be pushed off one cliff or another, such real and difficult challenges are going unaddressed.
Trump’s Tax on America
It would seem that for the Republican Party, an incompetent, erratic kleptocracy might just be the best form of government.
Or at least it was until March 1, 2018, the day Trump signaled his intention to impose across-the-board import tariffs of 25% on steel and 10% on aluminum. That decision, notes Pat Roberts, a Republican senator from Kansas, “is not going to go down well in farm country.”
.. His worry now is that Trump will pursue “a trade policy that will basically result in all the benefits of the tax reform being taken away by higher manufacturing costs being passed on to consumers.”
.. In the end, American consumers will pay for Trump’s tariffs. Such broad protectionist measures will affect every sector of US manufacturing in one way or another, and manufacturers certainly will not eat the full costs of higher-priced steel and aluminum inputs.
.. So, Trump has essentially proposed a new tax on US consumers and export industries, the costs of which will be borne largely by his own supporters in the American heartland and Rust Belt.
.. It turns out that Trump’s decision was taken against the advice – indeed, over the objections – of not just his
- chief economic adviser, Gary Cohn, but also his
- national security adviser, General H.R. McMaster, his
- treasury secretary, Steven Mnuchin, and his
- defense secretary, James Mattis.
On the other hand, Secretary of Commerce Wilbur Ross apparently favors the tariffs. But it is not at all clear why. The Department of Commerce itself surely recognizes that more Americans benefit from lower steel and aluminum prices than from higher prices.
Another supporter of the tariffs is Peter Navarro, who was recently promoted to Director of Trade and Manufacturing Policy and Director of the White House National Trade Council. That comes as no surprise. Navarro has written a number of alarmist books about America’s trade relationship with China, including one titled Death by China. Nevertheless, Navarro has not yet been able to explain how creating a larger domestic steel industry through tariffs will yield a net benefit for the US economy.
A final key supporter of the tariffs is US Trade Representative Robert Lighthizer, who formerly worked as a lawyer for the steel industry. As with Ross, it is not entirely clear what Lighthizer is thinking. He has to know that Trump’s tariffs will have little to no chance of boosting the US steel and aluminum industries without also imposing substantial costs on the economy. Doesn’t he realize that his own reputation will ultimately depend on whether the administration has a successful trade policy or an obviously stupid one?
Why China could win the West’s stupid — and pointless — war over steel
This month, President Trump tweeted, “If you don’t have steel, you don’t have a country!” Sounds great, but maybe he should try that line on his friend Benjamin Netanyahu, the Israeli prime minister. Israel doesn’t have any steel mills, but it certainly is a country, focused instead on developing the technologies of the future, not of the past.
.. the world is leaving the Industrial Age and entering a Digital Age of equal significance. The steel mills and coal mines of the past will not shape our future. Instead, efforts to harness control of digital technologies will be the new global race — and one that the West simply can’t afford to lose.
Beijing will be receptive to demands to cut back China’s overcapacity in steel production, as this will benefit the Chinese as well. Producing excessive amounts of steel is costly. But whether China will be ready to agree on the rules of the new global digital order is far more questionable — and far more important.
.. The United States and Europe would work out issues such as technology controls, data trade rules, free data flows and intellectual property rights. There are policy differences on some issues between America and Europe — notably privacy — but the two sides share much in the way of common interests and values. Yet, instead of trying to capture the future by agreeing on digital issues, there is a risk of the allies being trapped in a steel conflict, which bears virtually no relevance to the economic order of tomorrow.
.. The only likely victor in all of this is China. The more that the West divides itself on the issues of the past, the more China will gain leadership on the issues of the future.
The Real Reason for Trump’s Steel and Aluminum Tariffs
The Trump administration’s proposed tariffs on steel and aluminum imports will target China, but not the way most observers believe. For the US, the most important bilateral trade issue has nothing to do with the Chinese authorities’ failure to reduce excess steel capacity, as promised, and stop subsidizing exports. .. Trump no doubt sees potential political gains in steel- and aluminum-producing districts and in increasing the pressure on Canada and Mexico as his administration renegotiates the North American Free Trade Agreement. The European Union has announced plans to retaliate against US exports, but in the end the EU may negotiate – and agree to reduce current tariffs on US products that exceed US tariffs on European products.
.. But the real target of the steel and aluminum tariffs is China. The Chinese government has promised for years to reduce excess steel capacity, thereby cutting the surplus output that is sold to the United States at subsidized prices. Chinese policymakers have postponed doing so as a result of domestic pressure to protect China’s own steel and aluminum jobs.
.. Because the tariffs are being levied under a provision of US trade law that applies to national security, rather than dumping or import surges, it will be possible to exempt imports from military allies in NATO, as well as Japan and South Korea, focusing the tariffs on China and avoiding the risk of a broader trade war.
.. For the US, the most important trade issue with China concerns technology transfers, not Chinese exports of subsidized steel and aluminum.
.. Until a few years ago, the Chinese government was using the Peoples Liberation Army’s (PLA) sophisticated cyber skills to infiltrate American companies and steal technology.
.. Xi then agreed that the Chinese government would no longer use the PLA or other government agencies to steal US technology.
.. The current technology theft takes a different form. American firms that want to do business in China are often required to transfer their technology to Chinese firms as a condition of market entry.
These firms “voluntarily” transfer production knowhow because they want access to a market of 1.3 billion people and an economy as large as that of the US.
These firms complain that the requirement of technology transfer is a form of extortion. Moreover, they worry that the Chinese government often delays their market access long enough for domestic firms to use their newly acquired technology to gain market share.
.. The US cannot use traditional remedies for trade disputes or World Trade Organization procedures to stop China’s behavior. Nor can the US threaten to take Chinese technology or require Chinese firms to transfer it to American firms, because the Chinese do not have the kind of leading-edge technology that US firms have.
.. US negotiators will use the threat of imposing the tariffs on Chinese producers as a way to persuade China’s government to abandon the policy of “voluntary” technology transfers.