Steel Mills

Leibowitz: Biden Doubles Down on Trump Trade Policy—Why?

Written by Lewis Leibowitz

Donald Trump has been out of office for nearly two years. But some of his most unsustainable policies live on. Hostility to the World Trade Organization (WTO) is one. Tariffs that violate the rules of global trade is another. Immigration policy is a third. 

Trade is one of the most remarkable. Smart and experienced people are saying things that, on many levels, don’t make a lot of sense. Why are Trump policies kept by the Biden administration? They were not applauded when they were first put in.

IN PROGRESS... Leibowitz:The Trump Section 232 tariffs were, first and foremost, a gesture to the domestic steel industry. Aluminum was a different metric. The tariffs gave the steel industry a few months of astronomical prices and profits. In return, the industry announced construction of major new mills, almost all of which are electric-arc furnace (EAF) “mini mills.” No company has announced construction of a new blast furnace mill. The last new blast furnace steel mill was Burns Harbor, Ind., opened in 1964. 

Mini mills now produce about 75% of steel in the United States. Global steelmaking is about the reverse, with 70% blast furnace technology, and about 30% mini mills. But the trend is clear wherever one looks. Steelmaking is moving toward electric furnaces and away from blast furnaces.

The Trump tariffs were welcome news for steel companies, which employ, all told, a bit more than 100,000 workers. Most mini mills employ non-union workers, while most blast furnace mills are unionized. But what about the rest of the 160,000,000 workers in the US labor force? 

The investments in steelmaking announced in the wake of the tariffs were all EAF mills, and mostly in the South, in “right-to-work” states. Most of the EAF mills are non-union, and almost all new jobs in steelmaking will be non-union. So the new investments can hardly be a gesture to organized labor, a key Biden constituency. 

It is clear that President Biden’s pro-union stance is not the chief reason for maintaining steel and aluminum import restrictions. Nor do President Trump’s reasons for the tariffs resonate with the Biden team. 

The Trump team emphasized three basic reasons for the steel, aluminum and China tariffs: preserving manufacturing jobs, negotiating better trade agreements with US trading partners, and protecting national security. 

The tariffs on $350 billion worth of Chinese imports into the US have also been kept by the Biden administration. These tariffs were based on China’s transgressions against trading rules, including stealing intellectual property and subsidizing favored industries, which hurt import-competing industries in the US. 

The maintenance of these measures by the Biden administration is based on similar considerations. However, the worsening of the geopolitical climate, particularly China’s increasingly heated rhetoric about Taiwan, has caused the Biden team to keep the China tariffs, at least for now.

Immigration policy also illustrates the “strange world.” Biden has largely ignored the surge of migrants at the southern border. Biden is scheduled to end “Title 42” immigration restrictions this week, which will likely trigger a massive additional surge of migrants. But “remain in Mexico” was one of the most effective Trump policies to control the border, and the end of Title 42 will remove that option. 

In sum, the Biden administration changed some policies and maintained others. The only constant is uncertainty. The continued Trump policies are a holding action, while the Biden team decides what to do. 

In steel and aluminum, the Biden administration changed tariffs into quotas on some of our friends, including the European Union, the United Kingdom, and Japan. This has benefited producers in those countries because, economically, the “quota rent” (i.e., money) instead of going to the US government—which collects tariffs—to the exporters from those favored countries, who receive higher prices for their artificially scarce commodities. 

An intriguing “thought experiment” regarding quotas is suppose the US imposed a quota on all imports. Let’s say the US said that total imports, which will total about $3.2 trillion in 2022, would be limited in 2023 to the 2021 level of $2.8 trillion. What would be the effect on the US economy if imports were barred above that level, or if a 25% tariff were charged on the excess? And where would the money go? Would the US gain economic activity or lose it? Let me know what you think.

On Friday, the Office of the US Trade Representative announced that 352 exclusions from tariffs on Chinese imports will be extended for nine months, until Sept. 30, 2023. The announcement said that this will give the importers that benefit from the exclusions breathing space while the administration evaluates the future of the China tariffs during the “four-year review” of the actions. More evidence of maintaining things until decisions are made.

It’s hard to know what the economic effect of the extension of these exclusions has been or will be, because there is little available information on the value of imports of excluded products from China, and no information on how much imports of those products would have declined without the tariff exclusions. That also goes for steel and aluminum imports. 

The message from the Biden administration—uncertainty. Until some pretty serious disagreements within the administration are resolved, the Biden team will not let go of any trade restrictions. They must make decisions during 2023 or 2024, because long-term investment decisions affecting thousands of companies and millions of workers not in the favored industries benefiting directly from these import restrictions will be made. 

We all want the US economy to be stronger and more competitive. Over the long haul, competitiveness requires not protection but dynamism. That means freedom to adopt new technologies and new products, shifting workers and capital from the old industries to the new ones. Protective tariffs can inhibit or even eliminate that dynamism, which truly describes the singular attributes of American ingenuity. 

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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