Trade Cases

AEI: Tariffs on Chinese Imports Will Punish US Manufacturers

Written by Sandy Williams

The following is a reprint of an article by Dr. Mark J. Perry in response to the Wall Street Journal article about the duties imposed on imports of cold-rolled steel from China that SMU publisher John Packard was quoted in.  Dr. Perry is a Scholar at The American Enterprise Institute and Professor of Finance and Business Economics, School of Management, University of Michigan-Flint. (

An article in the WSJ last week (“U.S. Imposes 266% Duty on Some Chinese Steel Imports“) inspired Don Boudreaux to write a post on Cafe Hayek titled “A Neighborhood Tale.” That same WSJ report inspired me to re-write that article from a pro-consumer, anti-protectionist, anti-corporate welfare viewpoint as a counterpoint to the WSJ article’s typical pro-producer, pro-crony capitalism, pro-protectionist, pro-tariff perspective. Here’s my pro-consumer re-write:

New Title: U.S. Imposes 266% Duty on Some American Manufacturers Buying Chinese Steel Imports

Revised Text:

The Department of Commerce imposed preliminary duties on American companies who purchase imports of cold-rolled steel, used to make auto parts, appliances and shipping containers, from seven countries including China, whose steelmakers willing, cost conscious American customers were slapped with a massive tariff.

The duties, set at 265.79% foron American customers of Chinese steelmakers, will be imposed within the next week but must still be confirmed in a final determination scheduled for this summer. They are meant to punishdumping, or selling below cost. to improperly gain market share low-cost Chinese steelmakers who compete successfully for US market share against less efficient, high-cost American steelmakersChinese officials American steel buyers like GM and Ford have denied welcomed the practice of Chinese companies supplying low-cost steel for the economic benefits those low-cost inputs provide for their domestic steel-using manufacturing operations, which support thousands of American jobs.

After enduring one of their worst downturns ever, American steelmakers are Big Steel is now counting on crony capitalism and legal plunder through tariff protection to help ride out a weak market. A slowdown in the steel-heavy oil-and-gas industries combined with a boom in Chinese exports has deflated steel prices around the world, and greatly benefited US manufacturers like Ford and GM who use steel as an input.

The benchmark hot-rolled coil index fell 35% in 2015 to under $400 per ton, contributing to a $1.5 billion loss at U.S. Steel Corp., and an almost $8 billion loss at ArcelorMittal, the world’s biggest steelmaker, which has big operations in the U.S.

Both those companies have had to lay off U.S. workers and were behind petitions self-interested crony capitalist efforts to impose protective import tariffs on a range of steel products, including cold-rolled steel, to financially benefit the shareholders of U.S. Steel and ArcelorMittal.

Lakshmi Mittal, CEO and controlling owner of Arcelormittal, in a recent interview said he was counting on crony capitalism and legal plunder via tariff protection to help save his high-paid job and the wealth of his U.S. mills shareholders. heavily concentrated in northern Indiana. Tariffs Crony capitalism and special favors from legislators and government bureaucrats, Mr. Mittal said, “will help prices our bottom line.”

But can corporate welfare, crony capitalism and tariffs really save the American steel industry?

Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered inefficient Big Steelcompanies or improve market demand, especially in the oil and gas segment.

“There’ll be a short-term benefit,” said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills and Big Steel are always going to want more tariffs and more addictive corporate welfare, and it’s questionable how much more [protection from more efficient foreign producers] they can get.” The U.S. already has anti-dumping duties corporate welfare/legal plunder in place for Big Steel on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand for manufacturing production in the U.S. —regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.

Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability todisrupt the U.S. market provide steel for American manufacturers at the lowest prices. Their prices tend to be 20% to 50% lower than anybody else’s, providing great value for US firms. And because the volumes of its exports are so massive, Chinese steel is ending up everywhere. China last year exported more steel—100.4 million tons—than any other country except Japan produced.

The other countries supplying steel to American buyers that will be affected by the duties on American steel-using manufacturers are Brazil, India, Japan, Korea, Russia and the U.K.

Besides the fates of the individual companies that are part of Big Steel, the tariff debate, by imposing higher costs on American manufacturers and steel-using companies is landing in a campaign season where trade looms as a potentially major issue.

The campaign season and the rise of Donald Trump are renewing focus on the U.S. trade deficit with China, which averaged $1 billion a day in 2015. Mr. Trump has said he would impose large tariffs on Americans buying goods from China Beijing, alarming U.S. officials, steel using American firms, and industry leaders who back free trade.

The Obama administration has been discussing steel production with China, which pledged to trim output by up to 150 million metric tons over five years as a form of corporate welfare for American steelmakers. Chinese Premier Li Keqiang told U.S. Treasury Secretary Jacob Lew this week in Beijing the country would press ahead with economic overhauls to shrink the steel industry and assist the US government in its efforts to provide corporate welfare to Big Steel.

Industry officials and labor groups say China’s planned cuts amount to just a fraction of overcapacity and don’t go nearly far enough in providing corporate welfare and legal plunder to the shareholders of Big Steel. “Talk and dialogue must not be a substitute for action as addressing the root cause is urgent,” said United Steelworkers President Leo Gerard said on behalf of his shareholders.

Meanwhile, American firms like automakers Ford and GM that purchase steel to make cars in the US cautioned the Department of Commerce that raising steel prices through protectionism trade policies would make them less competitive, possibly leading to reduced production and worker layoffs or reduction in hours and overtime. And a spokesman at the Bureau of Consumer Protection (BCP) at the Federal Trade Commission, whose mission is to “protect American consumers,” spoke on behalf of America’s 250 million consumers. “Regrettably, the 266% tariffs on Chinese steel won’t punish China as much as those taxes will punish millions of Americans with higher prices for everything that contains steel, including cars, appliances, tractors, tools, construction materials, wind turbines, forklifts, pipelines, and airplanes,” said the BCP spokesman. “To further our mission to protect American consumers, we strongly object to 266% tariffs because they are form of legal plunder, crony capitalism and corporate welfare for Big Steel.”  

Bottom Line: It’s disappointing that when the media, including the pro-trade WSJ, cover a tariff story like this one, they always write it almost completely from the viewpoint of the inefficient, high-cost domestic producers, who of course supports trade protection and tariffs because it’s a form of crony capitalism, legal plunder, and corporate welfare that benefits the shareholders of domestic firms, Big Steel in this case. What never gets mentioned in media reports about trade protectionism is the fact that protectionist trade policies like a 266% tariff provide significant, concentrated benefits for a small number of well-organized, rent-seeking domestic firms like Big Steel…. but at the expense of much higher costs and possible job losses that are imposed on hundreds of millions of disorganized and dispersed consumers and the domestic firms that use steel as an input. As Bastiat taught us back in 1850, we should “treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” Tariffs of 266% on Chinese steel imports will further the interests of Big Steel and their shareholders, to the significant detriment of consumers and therefore the human race, and are therefore objectionable and injurious.

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