Executive Intelligence Review


Trump Steel Tariffs ‘Make Sense,’ But Don’t Make Productivity

June 4, 2018 (EIRNS)—President Donald Trump will encounter strong opposition from Europe and Japan to his steel and aluminum protective tariffs at the June 9 G7 summit, after virtual “days of rage” against them at this weekend’s G7 foreign ministers meeting. Meanwhile Commerce Secretary Wilbur Ross had what he described as “friendly and frank” discussions in China toward an agreement to avoid punitive tariffs on “Made in China 2025” high-technology products; but China said its earlier promise to increase agricultural imports from the United States, depends on the success of these discussion between now and June 15.

Some leading Senate Republicans are also opposing Trump’s steel and aluminum tariffs on its “allies,” with the argument—stated by former Bush U.S. Trade Representative Carla Hills—that Trump should have ganged up with “allies” against China instead.

In fact, Trump’s aim, which is to achieve 80% capacity utilization in a U.S. steel industry responsible for more than 2 million jobs, is fully compatible with China’s aim to reduce its steel (over)production very substantially, from 900 million tonnes (more than half of all world production) to 700 million tonnes total annual production. China is already just 30 million tonnes away from this goal, and expects to meet it this year, having shifted to the most modern large-scale steel production technologies and closed down older coke-oven and smaller scrap-steel induction technologies. It has been willing to eliminate 1.1 million industrial jobs in the modernization process, even while it creates 12 million new jobs/year overall.

The Trump Administration’s goal has been to stop Canada, Mexico, Brazil and some European companies from importing and re-exporting Chinese steel to the United States; and as China reduced its production, from exporting more of their own produced steel in place of the transshipments from China. Failing to do that by quota negotiations during the period all those “allies” had steel tariff exemptions, Trump ended the exemptions and imposed the 25% tariff.

Trump’s and China’s objectives are compatible, but: China has rising steel demand, at home and in the Belt and Road projects; U.S. steel consumption has been stuck at 100 million tonnes/year for more than 15 years. Even the shrunken U.S. production of 85 million tonnes/year comes close to meeting it.

Where would increased steel demand come from? Some 70% of all steel consumption is for a) buildings and infrastructure (“public construction” but also including commercial real estate) b) mechanical equipment (Deere, Case IH, Caterpillar, etc.), and c) rail/transport construction. So it would have to come from national credit for new U.S. infrastructure building and joint projects with Asian countries on the New Silk Road. That would result in higher-productivity employment of an actually increasing steel-related skilled workforce.