Steeling Students Against Protectionist Claims

A Wall Street Journal headline writer likely sensed something amiss with the latest calls by U.S. steel producers for more protectionism. The August 12, 2015 WSJ print edition article by John W. Miller was titled: “Steelmakers Lodge New Trade Gripe.” However the online version of the article, dated August 11, has a less ridiculing headline: “U.S. Steelmakers Again Ask for Tariffs on Imports” (as usual Google full title to find article ungated).

The article notes this is the third trade complaint of the summer by U.S. steel producers, claiming foreign firms are “dumping” steel below costs:

The request targeted imports of hot-rolled coil—used in making cars—from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. China wasn’t named in the petition because the U.S. already has tariffs on imports of that kind of steel from China. The petition was filed with the U.S. Commerce Department and the U.S. International Trade Commission.

Strange that all these countries should decide to turn to the dark side and trade “unfairly” by offering lower-price steel to U.S. automakers.

This Wall Street Journal article doesn’t mention “dumping” by name, but a July 15, 2015 Duluth New Tribune article does: “Trade commission agrees foreign steel was ‘dumped’ in U.S.“

The U.S. International Trade Commission on Friday announced a preliminary determination that imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan injured the U.S. steel industry.

And:

 The companies claim that the increased below-cost imports of steel have reduced demand, in some cases forcing mill closures that have led to layoffs at Minnesota operations. …

“We are pleased the ITC has confirmed that the flood of unfairly traded imports of corrosion-resistant sheet steel has materially impacted our shipments, pricing and profitability,” said Mark D. Millett, chief executive office of Steel Dynamics. “SDI believes in fair trade, but the U.S. has become a dumping ground for world excess steel capacity.” 

Sounds like foreigners are out to get us! Except… the WSJ mentions the actual price of the hot-rolled coil steel used by U.S. carmakers and other manufacturers:

The problem for U.S. steelmakers is sluggish prices, which are held down by inexpensive imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen more than 20% this year to $468 per ton. 

That is still about $100 higher than the price in Europe and $200 above that in Asia, according to steel buyers, making the U.S. a tempting market.

Wait… what?  This hot-rolled coil steel–key for U.S. automakers–is 20% less expensive in Europe and 40% less expensive in Asia? Doesn’t that give a significant cost advantage to European and Asian automakers and other foreign manufacturers who enjoy access to significantly less-expensive steel?

And if steelmakers in “Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K.” are dumping steel in the U.S., they must be ultra-dumping steel in Europe and Asia. Either that or shipping costs are extraordinary.

Imports of hot-rolled steel has increased according to steel industry executives, with the implication that foreign firms are dumping excess capacity onto U.S. markets:

Imports of hot-rolled steel from the seven countries named in the latest petition increased by about 73% from 2012 to 2014, rising from 1.9 million tons to 3.3 million tons, AK Steel said.

Wow, 73% is a big increase!  But what also happened over this time was a huge increase in U.S. demand, with auto manufacturing booming, rising 19% in 2012, 7% in 2013, and 5.4% in 2014.

A May, 7, 2015 WSJ article, “U.S. Steel CEO Says Tariffs Could Be Needed On Chinese Imports” quotes Mr. Longhi, the new head of U.S. Steel, who has been cutting costs, laying off workers and boosting stock prices (and his pay). In addition to streamlining steel production, Mr. Longhi is trying to raise tariffs on imported steel, particularly steel from China:

Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”

In this article, steel tube is the focus, where demand has been hit hard and unexpectedly this year, after oil prices dropped by half last fall, and demand for steel pipe by shale drillers dropped soon after. The article blames imports:

Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries. 

Consider though that for U.S. manufacturers and U.S. consumers, lower prices for steel is a good thing. Only for the U.S. steel industry is lower-cost imported steel a problem.

Students researching U.S. trade policy with Japan, China, South Korea, and Taiwan, can research these ongoing debates over steel imports and tariffs.

Tim Worstall in Forbes puts the question of steel tariffs this way in a June 4, 2015 column:

There’s two ways that we can describe the attempt by the US steel industry to gain anti-dumping tariffs against China and other countries. The first is that it is an attempt by that US business sector to protect themselves from that foreign competition. The other is that it’s an insistence that all Americans should become poorer in order that those profits and those jobs should be protected. Both of these descriptions are true: and the second follows logically from the first. 

Economist Richard Ebeling posted recently on Facebook a quote from an 1830s economics textbook, to give people a sense of economic principles taught nearly two centuries ago:

Here is what economics books used to sound like, from Thomas Cooper’s “Lectures on the Elements of Political Economy” (1830), on the principles and policies of economic logic and understanding on the benefits of freedom of trade and enterprise: 

“The true principles of Political Economy, teach us that a system of restrictions and prohibitions on commercial intercourse, cuts off the foreign market, diminishes the number of buyers, and the demand for our national produce; hence, the consumer is compelled to pay more to the home monopolist. 

“Hence, the wealth of the nation is wasted; every consumer is abridged of comforts that he might otherwise procure, and his means of purchasing even home-commodities are diminished. 

“They teach us also, that men should be permitted, without the interference of government, to produce whatever they find it their interest to produce; that they should not be prevented from producing some articles, or bribed to produce others. 

“That they should be left unmolested to judge of and pursue their own interest; to exchange what they have produced when, where, with whom and in what manner they find most profitable and convenient; and not be compelled by theoretical statesmen to buy dear and sell cheap; or to give more, or get less, than they might do if left to themselves, without government interference or control. 

“That no favored or privileged class should be fattened by monopolies or protections to which the rest of the community are forced to contribute. 

“Such are the leading maxims by means of which Political Economy teaches how to obtain the greatest sum of useful commodities at the least expense of labor. These are indeed maxims directly opposed to the common practice of governments, who think they can never govern too much; and who seek to prey upon the vitals of the community.”

This remains wisdom for our own time. 

Stoa debate students have an opportunity to learn the principles of market economics and trade, and apply these principles to the Asia trade policy topic.