US-China Steel Trade War Remains Uncertain

US-China Steel Trade War Remains Uncertain

By GABRIEL MORAN | August 14, 2017

Amid the swirl of the Senate health care debacle, the highly anticipated G20 meeting, and the continued Russian collusion allegations, the U.S. Department of Commerce and its Secretary Wilbur Ross had been preparing a report in anticipation of the White House issuing foreign steel tariffs.

The deadline for the promised report from Secretary Ross went unacknowledged on July 10, making it the second time the target date has been passed by. In this instance, the Department of Commerce was waiting on the Pentagon to complete its evaluation of the effect of such tariffs on national security. Since the initiation of the report in April, it has been plagued by delayed releases of impact analyses and other crucial documents that forecast the effect of such tariffs on U.S. manufacturers, consumers, and the global economy.

This ambitious policy had been a major campaign promise by President Donald Trump, who proudly touted the “America First” mantra with regards to international trade. His protectionist tariff promises resonated with his voting base, many of whom are based in heavy industry states such as Ohio and Pennsylvania. Promises made by Trump’s campaign to restore the American manufacturing industry through protectionist initiatives helped him carry the Rust Belt states.

To this end, the President has already ripped up international trade deals such as the Trans-Pacific Partnership, which he accused of being, “an attack on America’s business.” There was similar talk on the campaign trail regarding the North American Free Trade Act, however, the President backed away from abandoning the trade agreement altogether and announced in May that the White House had begun the process of renegotiation. The President has even accused major Asian industrial countries of being “currency manipulators,” referencing the artificial weakening of certain Asian currencies such as the Chinese Yuan and Japanese Yen against the U.S. dollar.

The issue of Asian steel imports has been central to major trade imbalances for the United States. During his campaign President Trump stressed the severity of U.S. economic dependence on steel and the evaporation of the American steel industry that thrived in states like Pennsylvania. From the perspective of the President, the dominance of Chinese steel in the U.S. economy threatens the national security of the United States. The White House invoked the Cold War era Trade Expansion Act of 1962 and “Section 232,” which grants the Secretary of Labor the power to conduct an investigation into imports and their effect on national security. The White House expects the report to find that a weakened U.S. steel industry threatens American industrial support of the military and critical infrastructure in the United States.

At the G20 meeting last week in Germany, the President was expected to press his contemporaries on the issue of excess global steel production capacity. One of the main targets of his potential tariffs or quotas is China. According to the World Steel Organization, Chinese steel production accounted for almost half of the world’s supply in 2015. A consensus on the issue within the G20 was not reached. South Korea, Canada, and Brazil, who primarily export steel to the United States, voiced the fear that they will bear the brunt of any potential restrictions on steel importation. Russia has already raised concerns over the United States invocation of Section 232 at a World Trade Organization meeting last month. Internationally, it is expected that few countries will support the United States if it does engage in such economic measures.

Around the world, political scientists, economists, and businesses are trying to decipher the President’s musing with the hope of gaining some insight into the Trump administration’s next steps regarding tariffs and trade quotas. In an interview with Fox Business, Scott Paul, the president of the non-partisan Alliance for American Manufacturing expressed both support and concern over the President’s fast pace. Paul, who believes that tariffs will help domestic steel industry, characterized the administration's timeline as “ambitious”. According to sources within Washington, the administration has fielded a rush of steel manufacturing lobbyists cautioning the President on protectionist tariffs that potentially drive up their prices. The Truck and Engine Manufacturers Association, in an open letter to the Department of Commerce wrote, “Protecting and providing for the defense of the United States is always of the highest priority... So too, however, is ensuring the strength and competitiveness of our national economy.”

Many economists are skeptical of the President’s plans to initiate measures that could disrupt international trade. Stephen Moore, an economist with the Heritage Foundation and a familiar face to the Trump campaign lamented, “If he [Trump] actually pulls the trigger, it would be highly disruptive for world trade...It’s not even going to really work in terms of helping American workers.” Economists and political commentators have also pointed to the ill-fated policies of both former Presidents Barack Obama and George W. Bush, who engaged in similar protective measures against Chinese imports and suffered the unintended effects of their decisions. Potential retaliatory measures from China also loom heavily over this report.

When asked about the potential protectionist measures, White House Chief of Staff Reince Priebus was quoted in an interview with Fox Sunday News as saying, “My guess is that he will [impose foreign steel sanctions] because he promised he would.” Earlier this month the President tweeted “Really great numbers on jobs & the economy! Things are starting to kick in now, and we have just begun! Don't like steel & aluminum dumping!” The international community is watching the White House warily as it potentially disrupts the World Trade Organization system and hence international free trade. However, as tensions with North Korea escalate and China becomes more integral to diplomatic negotiations with the troublesome country, economic policy that affects Sino-American trade could sour a tenuous but very important relationship.

Proponents of the protectionist measures see the potential move from the White House as the President keeping his “America First” promise. Meanwhile, opponents have dubbed the initiative as misguided, saying it could serve to be the opening shots of a trade war between two of the world’s largest economies which would imperil the health of the global economy. At present, the future of any steel tariffs or quotas is uncertain and will likely remain muddled considering international and domestic developments.

 

 

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