Leibowitz on trade: Where is the voice of the consumer?

Consuming industries in the United States, which employ many times the American workers as the industries seeking trade protection, were not mentioned. Steel users such as energy companies, the automobile industry, appliance manufacturers. and many others (e.g., US Chamber of Commerce, National Association of Manufacturers) didn’t applaud the administration’s actions. Could it be that the Biden administration is ignoring them?

Trade barriers spur inflation

If you need more evidence than the absence of support by broader groups, members of Congress are also on the bandwagon favoring ever more tariffs. Last week, seven Democratic Senators supported retaining the Section 301 tariffs on Chinese imports, and the proposed tripling of tariffs on Chinese imports currently paying 7.5%. These additional tariffs will either cost consumers more money by increasing import prices or shifting demand to more expensive goods made in the US.

What’s the reaction to all these calls for more consumer costs? Crickets.

Steel prices in the United States are higher than anywhere else in the world. Any product made from steel will pass that cost on to downstream steel users, triggering a migration offshore of manufacturing.

Car prices are on the way up also. And if the tariff hawks have their way, especially for electric vehicles. China’s exports of EVs have skyrocketed. The reviews of these vehicles are actually pretty good. The low prices could be the result of dumping (selling below cost, or in China’s case, an artificial price based on material prices in “market economy” countries) or subsidies.

The US Department of Commerce, armed with enormous discretion to come up with numbers that are huge in these cases, could construct insurmountable barriers to imports of many products. But tariff advocates want automatic tariffs without the expense of actually filing dumping and countervailing duty petitions.

Tariffs at odds with policy objectives

There is no question that domestic producers genuinely feel that imports compete unfairly. But that does not explain the current situation. Advocates for protection tend to be in industries that are not globally competitive. But in steel, for example, the non-competitiveness is also within the industry. Electric furnace mills are genuinely competitive with imports, while the older blast furnace mills are not.

Add in the government’s urgency (obsession?) with climate change, and the urgency is to shift production, both here and abroad, away from blast furnace production and toward electric furnaces. But that would jeopardize the future of the two remaining blast furnace companies, Cleveland-Cliffs and US Steel. Their future is cloudy because of emissions—major investments in alternative technology (such as replacing coal in blast furnaces with hydrogen) are necessary to assure continued a place for blast furnace production far into the future. In the meantime, US production supplies only 85% of US demand. The rest must come from imports.

The textile industry is in an even less enviable position. More than 90% of the clothing purchased in the United States is imported. In 2022, more than $116 billion worth of clothing was imported, about 5% of total US imports in that year. By contrast, steel imports were about $32 billion in 2023.

Tariffs on imports from China and other Asian countries are not likely to make apparel manufacturing in the United States more competitive. The production of apparel has long since largely emigrated from the United States.

The groups that are clamoring for protection don’t have the most American workers. Energy, food, retail, and auto account for far more workers (and voters) than steel, textiles, and sugar production.

This raises the question of why some sectors and interests are not pushing harder for more trade rather than less. Agriculture, for example, has been complaining that punitive tariffs on China will close export market for US agriculture. But the administration has chosen to hit China anyway. Could it be that agriculture is not a key voting bloc in the seven “battleground states” (Michigan, Wisconsin, Nevada, Arizona, Pennsylvania, Georgia, and North Carolina) this year?

The Biden administration is very interested in fighting climate change, to the point of creating a White House “climate ambassador” position. However, policy choices do not always favor climate action. Recent steps to stem China’s exports of EVs to the US (and Europe) seem to go against the strategy to replace internal-combustion vehicles with EVs as quickly as possible. But the two presidential candidates, fighting for the same voters (manufacturing workers) choose to protect those interests by hitting China.

Have we forgotten that trade can promote peace?

Having been involved in trade disputes and political contests for quite a while, I note the absence of strong voices for the promotion of trade, even among friendly nations. I believe there are several reasons for this.

“When goods don’t cross borders, soldiers will.”

French economist Claude-Frédéric Bastiat

First, the economy is doing nicely at the moment, which means that additional trade restrictions, while annoying, are not life-threatening for manufacturing industries. Second, the political winds are blowing against international trade expansion, even though the interests favoring trade are more numerous and employ more workers than those seeking more protection. Third, there are issues other than trade — taxation, environment, investment — that are important to manufacturing and agriculture. The electric grid needs refurbishment and dramatic expansion as demand for electricity is skyrocketing. Tax provisions expiring in 2025 require the attention of government affairs departments. Pushing one issue requires easing up on others. Inflation and interest rates are key issues too. On Friday, the stock market averages surged on news that the April new jobs report was weaker than anticipated. Bad news is good news!

Overriding all of this is increasing global uncertainty (Israel-Gaza, Ukraine, Taiwan). Used to be, when trade expansion was a powerful force, the basic argument favoring it was that trade expansion promotes peace.

“When goods don’t cross borders, soldiers will.” That’s a quote often attributed to 19^th-century French economist Claude-Frédéric Bastiat. I find that compelling. Unfortunately, that argument is not persuasive right now when it comes to broader political and cultural debates. I find that concerning.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.