Last Friday, the United States International Trade Commission issued a news release with the bland headline, “Certain Oil Country Tubular Goods From India, Korea, Taiwan, Turkey, Ukraine, and Vietnam, But Not Philippines And Thailand, Injure U.S. Industry, Says USITC.”
Translation: the USITC agreed with the Department of Commerce that these countries were “dumping” steel products — selling them below costs — in the United States, and that tariffs will be imposed to eliminate the price difference between U.S. and foreign producers.
Gov. Mark Dayton and Sens. Amy Klobuchar and Al Franken were unanimous in their praise for the decision. “This is a major victory for hardworking miners in Minnesota and across the country,” Klobuchar declared. She went on to say that “these new penalties will help crack down on illegal trade practices and protect steelworker jobs, and I’ll keep fighting to ensure that our businesses are competing on a level playing field.”
Franken added, “American iron and steel producers and our workers can compete with anyone in the world on a level playing field. But we can’t accept when other countries dump their goods here at anti-competitive prices, undercutting Minnesota’s producers.”
The Republican challengers to Dayton and Franken, Jeff Johnson and Mike McFadden, were silent about the decision. I’m not surprised that they would refrain from publicly supporting the ruling, but one would think that the traditional Republican commitment to free trade would prompt them to decry the imposition of tariffs. Perhaps McFadden’s experience with endorsing the use of Chinese steel in the Keystone XL pipeline tempered his response.
Unfortunately, economics got trounced by politics on this issue. The USITC decision is not a victory for the economic well-being of Minnesota steelworkers and their families. It’s a victory for those who think international trade is a zero-sum game, one in which the gains of American workers must be purchased by losses extracted from the labor forces of other nations. And it’s a loss for those of us who see international trade as a win-win proposition.
As I pointed out six weeks ago, when the Commerce Department made its initial finding on steel dumping, imposing tariffs is an ineffective way to help workers. “The only group that is certain to gain from all of this is the army of lawyers, accountants, economists and other consultants who work on antidumping cases,” I wrote then.
If anyone else gains, it’s likely to be the steel companies. They are assured a minimum price for their products without the need to compete on price with international competitors. And, yes, tariffs might help Iron Range communities by keeping plants open that might close, or keeping processing facilities running longer hours, meaning a few more hours for existing workers.
But a more effective way to help Minnesota’s workers is to equip them and their communities with the human and physical capital needed to compete for jobs in new industries and break the hold of the steel industry on the economy of northeastern Minnesota. That would be a “major victory.”
Tariffs serve a purpose.
They raise the cost of products sold below cost to a more reasonable level–thus permitting other companies (that are NOT being subsidized) to remain in business.
Below WHOSE cost ?? And WHOSE subsidies are at issue ??
American industries are massively subsidized by, e.g., the tax code, and also the virtual give-away of natural resources, not to mention the huge numbers of lobbyists and influencers who insert sweetheart clauses in virtually every piece of national legislation.
It is not the case that only foreign industries are subsidized, while American industries are not. This is at the heart of the “dumping” issue.
The tax code does provide incentives for business. But those SAME incentives are available for ALL businesses–so it applies to EVERY business.
The point, which you carefully avoided discussing, was selling BELOW COST. This means selling the produced product at a price lower than its production cost. Business does NOT sell below cost because they can choose to NOT make that sale (and thus increase their profits by not producing an item intended for sale below cost)–but govt does provide goods and services below cost if necessary. Thus, large volume sales below cost are sales by govt–not business. This would be especially true when the seller is a Chinese entity.
Your information is of low quality.
First, the special tax exemptions, credits, etc. that a specific industry acquires through its lobbying and legislative programs do not apply to ALL businesses, as they concentrate on buttering their own bread. Example: oil depletion allowance. Does this apply to all businesses ?
Secondly, your point about “below cost” is not what the USITC is focused on, though it may possibly include goods sold at below cost. If you read the USITC’s own internal documents, rules, and enabling legislation, you’ll find that their examination is largely focused on “Less Than Fair Value” (LTFV) – aka the colorful “dumping” – which is defined as follows:
“…dumping is defined as selling a product in the United States at a price which is lower than the price for which it is sold in the home market (the ‘normal value’), after adjustments for differences in the merchandise, quantities purchased, and circumstances of sale.”
Another statement of the problem from USITC sources: “…imports that are sold in the United States at less than fair value (“dumped”) OR which benefit from subsidies provided through foreign government programs.” (My emphasis is added in capitalizing the “OR” here to show that subsidies by foreign governments are not the sole criteria. Mainly, it’s LTFV.)
So your claim that only selling at “below cost” is involved is not true by the USITC’s own rules.
Finally, as to your claim that the sales in question are by governments, in the process of their investigation, the USITC queries and obtains its information from the foreign companies, the producers of the goods with whom the U.S. importers are dealing, not the foreign government. And further, the scope of its investigations is beyond cases where a foreign government subsidy contributes to the problem.
Before those dramatic sighs in your comments, as though it is your great burden in life to correct others – the ignorami – you might first inform yourself better:
http://www.usitc.gov/trade_remedy/documents/handbook.pdf
Tariffs are a form of subsidy.
Diversify, diversify, diversify
I’m not prepared to argue the minutiae of international trade agreements, but Professor Johnston’s last paragraph is one that rings true. Even when the natural resources at hand steer economic decisions in a particular direction, as they appear to do in the Iron Range, the long term health of the area economy pretty much requires alternative strategies, occupations and products.
I understand that it’s currently politically necessary to make the required noises about protecting American jobs and factories, but as Johnston suggests, a more effective, and in the long run more beneficial, approach would diversify the Arrowhead’s economy and workforce skills so that things related to steel are not the only, and eventually not even the primary, source of jobs and income for residents of the area.
For a long time, the St. Louis-area economy relied on defense contracting via McDonnell Aircraft (now absorbed into Boeing) and beer-brewing via Anheuser-Busch (now absorbed into InBev). In both cases, reliance on a single industry proved to be a mistake. Beer-brewing employed fewer people in terms of production (distribution remains only slightly changed), so it was easier for the area to recover from layoffs in that area when the corporate octopus grabbed the local company, but many thousands of very highly-paid and technically sophisticated jobs were (and to a degree, still are) reliant on political fear-mongering by the military-industrial complex to keep production of war planes going even when there’s no discernible need for them. When those defense contracts get cancelled, lots of people get laid off in a hurry, and St. Louis has felt the effects of the defense industry’s roller-coaster ride over the past several decades.
Six weeks ago
Sorry I missed, but if I hadn’t missed it at the time I would have pointed out two or three things:
First, you say then:
“Will imposing a tariff that raises the price of steel imports make workers on the Range better off? It all depends on how companies that buy steel react to the increase in its price. And, it is worth noting, any benefits the Iron Range gains will be at the cost of other sectors of the U.S. economy”
You say now:
” It’s a victory for those who think international trade is a zero-sum game, one in which the gains of American workers must be purchased by losses extracted from the labor forces of other nations.”
I think you need to explain why national economies are zero sum games but world economies are not.
Second, there’s no such thing as a “free” market yet you assume that free markets establish prices, or at the very least that “markets” always establish the lowest and best prices. These assumptions are demonstrably false. It may be true that markets establish prices, but those prices aren’t always the best prices.
Third, you artificially truncate the possible outcomes and shift the risk to public while funneling the gains to the private sector. Whether or not US manufacturers add jobs, tariffs are likely to preserve US jobs, and that’s not an inconsequential outcome. You don’t consider the possibility that lower unemployment will raise wages and that higher wages increase buying power which translates into greater demand for products containing steel. Corporate welfare programs compensate for poor or lower wages distort the market just as much if not more than tariffs.
Look, we were there in the 90s when you guys told us not to worry about losing jobs because we’d just make more and different jobs… and we’ve seen how that worked out. Turns out the world is not flat after all.
Neo-liberal economics have failed to deliver the promised broad economic benefits.
Russia
How quickly we forget. There are is also pressure to put tariffs on Russian flat rolled steel. When the US was producing heavy armed vehicles and uparmouring vehicles for the wars in Iraq and Afghanistan much of the steel came from Russia.
yep, that last paragraph says it all
Thanks for making the effort on this article. And to Mr Udstrand, it may be possible that some economic concepts have not delivered like he would have liked, not because of a flaw in the mechanism but in a flaw of the public to follow through.
Change is tough for folks, even if it fattens the wallet.
Quality control before profit and the economics of it all…
Anyone want to play with the idea that China dumping is an issue that goes much further than the economics of it all? Try quality products and China has been found wanting?
Drool more oil all over the Midwest for the sake of economics/profit made of defective China,Asian steel…way to go when pipe lines leak and rail lines bust and tankers explode?
Economics be dammed. It’s more than economics that should be critically analyzed here, hey?
Let’s hear from real experts on the issue…a forum style discussion not a simplistic, one-sided story? Then the above article may support a few worthwhile points, maybe?
Debate
Gentlemen, Lets end this debate by a professional, an expert, by someone who actually trades domestic and offshore steel.
I have stood right where the picture in the article was taken at China Steel (CSC) which by the way has nothing to do with “China” – that can be confusing.
Any case, Louis is correct. AD will cost your economy more than you will gain. Most people don’t realize everything made uses steel- everything.
The case in Minnesota is just a classic sophisticated businessman working with a congressman to make money, plain and simple.
Here’s a small example of AD does. Some clients of mine buy pre-painted Galvalume (steel ) from Taiwan. A newly retired couple elects to put a new metal roof on their house- the cost will be $30k.
However if AD issue occurs now couple will cost $70 k – too much to afford. That means, no order for me, no order for the steel mill and no order for my customer. Result customer eventually goes out of business.
This is all simple stuff for anyone who has been in business, I think people just get frustrated at people who have not. Like golf, nobody really wants to hear what someone who has never played golf has to say about golf. Why? Because they don’t know – they don’t understand it.
Same in this case you all want to take swings showing how smart you are when I highly doubt no one has ever traded steel. And I’m not talking about little stuff , I’m talking trading vessel loads 80,000mt . Big boy trades that make the news:)
Anyway point is – anti dumping,
Tariffs, duties, subsidies all our evil and they are just sophisticated business ways to make money and take it out of your pocket and put it in mine.
If we have to debate these basics do we have to debate gravity, or should we drink water.
You can’t learn business or economics from a book or class room – you to live it and learn from those who have.
Peace you all hope you all get it worked right.
Stop Anti-dumping – the efficient producer should always win, because when they win we win.
Word.