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Tariffs as a Tool Towards Broader Free Trade

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President Trump signed Trade Section 232 Proclamations on Steel and Aluminum today.

The signing starts a 15-day countdown before a 25% tariff on imported steel and a 10% tariff on imported aluminum goes into effect.

The Executive Order included a clause granting Canada and Mexico a roughly 30-day grace period to avoid being impacted – but only while NAFTA talks continue.

You can see the signing – along with President Trump’s comments on the situation. It’s worth a watch:

China produced 128 million tons of steel in 2000. China produced 823 million tons in 2014.

China has been a net exporter of steel since 2006 and shipped a staggering 100 million tons of steel abroad in 2015.

China now produces 50% of the world’s steel. The United States produces 5% of the world’s steel.

The United States is the largest importer of steel. The value of steel shipped into the US was just over $29 billion in 2017.

Canada is technically the largest supplier of steel to the United States. South Korea and Mexico are effectively tied for second place.

An undetermined, but very significant, portion of that steel is coming via indirect shipments from China in a process known as transshipping. Transshipping is the shipment of goods to an intermediate destination before shipping to the final destination.

Chinese steel is sold into Canada and Mexico. That steel is then fabricated and resold by Canada and Mexico into the U.S. markets. Canada or Mexico shows up as the exporter but the steel is Chinese in origin.

This process occurs with finished or semi-finished goods comprised of Chinese steel that are shipped into our country from Canada, Mexico and elsewhere.

NAFTA “rules of origin” encourage this process.

I’ve put forth my position on the steel tariffs here.

In essence, I feel that economic arguments related to absolute and/or comparative advantage on trade fail when we’re experiencing chronic levels of under-employment.

Equally important is the simple fact that we’ve not had anything approaching free trade for a long time. Perhaps never.

Of over-arching importance is how the careful use of tariffs – in this particular situation – will actually help move us back towards a fair trade position overall.

There are many other factors at play on this moving chess board.

NAFTA will either be renegotiated with significantly better terms or we will not participate.

White House Trade Advisor, Peter Navarro noted the following:

Canada and Mexico are going to be given an opportunity to negotiate a fair trade deal for NAFTA. If we get that, they won’t receive the tariffs.

(Tariffs on transshipments would still apply)

North Korea factors heavily into the overall equation. It’s no coincidence that North Korea is suddenly willing to hold talks with President Trump’s Administration over disarmament.

There may be a long road ahead on this issue (although perhaps not) – but the timing of North Korea’s announcement is transparent.

If any doubted that China was holding North Korea’s leash, doubt no longer.

The application of the steel tariffs also spills over onto all other imported goods.

Steel and aluminum were the chosen targets. The real goal is overall trade re-balancing and the reduction of our trade deficit with China.

China understands this clearly. They don’t like it. But they understand it.

The numbers being discussed are truly staggering:

President Trump understands the most powerful tool in foreign policy is economic strength.

Which is why he’s focused our country on energy self-sufficiency and net exportation. From a March 5, 2018 article:

The U.S. will overtake Russia to become the world’s largest oil producer by 2023, accounting for most of the global growth in petroleum supplies.

How any can rationally believe President Trump is aligned with Putin or Russia baffles me. This is the last thing – the absolute last thing – that Russia wants to occur.

Russia, as the world’s biggest gas station, does not want to see a larger gas station suddenly set up shop.

These developments are all interconnected.

At the conclusion of President Trump’s remarks he invited the attending steelworkers to speak. Several took him up on the offer:

My name’s Dusty Stevens. I work at Hawesville, Kentucky. Right now, we’re running at 40% capacity. Two years ago, we shut down 60% of the capacity when we had a downturn in the market. My father worked at that plant for forty years. So this hits home for all of us at Hawesville. These tariffs going into place – this gives us the ability to come back to 100% capacity, investing over $100 million into our plant – and over 300 jobs will be brought back to the communities. So I’d like to say thank you.

My name’s Scott…and I’d like to tell you a story about my father during the eighties. He lost his job due to imports coming into this country. And I just want to tell you, what that does to a man with six kids is devastating. So I never forgot that, looking into his eyes – in my household – what that does to a family. You hear about it, but when you’re actually involved, and it impacts you, it’ll never leave you.

Real people. With real families.

An illustrative twitter exchange occurred today. Elon Musk was responding to President Trump:

President Trump specifically highlighted Musk’s tweets during his press conference.

As President Trump said:

We Just want fairness.

Fair trade. A worthy goal.

Editor’s Note: I agree with Musk’s thoughts but find it a bit hypocritical given the magnitude of government subsidies his companies have received.

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