Writing in the New York Times, Josh Bivens writes that the Trump steel tariffs are intended to address a specific economic problem: “global excess production capacity, propped up by foreign governmental subsidies.”
That’s not quite the whole story. China does produce a great deal of steel, as do South Korea and Japan. As does the United States. Many countries subsidize steel production, directly or indirectly. The United States has done so through tariffs and other measures.
Whose production is “excess”? If you’re a politician, the answer is always, “The other guy’s.” We should think more carefully about that.
Via Dan Fickling at Bloomberg’s Gadfly:
The natural response to reduced demand is to cut capacity as well. But, almost uniquely among major steel producers, the U.S. never did that.
Annual output capacity of 113.3 million metric tons in 2016 was a scant 100,000 tons less than it had been in 2007. The European Union trimmed about 14.1 million tons over the same period. As a result, while Europe’s steel capacity utilization has edged up in recent years, America’s has languished at the sub-80 percent levels where making a profit becomes a struggle.
Chinese steel production is down about 10 million tons off its most recent peak, and China, too, has undergone a restructuring, cutting about 100 million tons of capacity over a very short period of time.
The United States uses relatively little Chinese steel (China is not among the top-ten exporters of steel to the United States; Canada leads the list), but China looms large in Trump’s conspiracy-theory understanding of the world economy.
But rather than hurt Beijing, Trump’s tariffs could very well have the opposite effect: raising worldwide steel prices to the benefit of China, which produces almost half the world’s steel, while disadvantaging U.S. manufacturers and builders, who will pay a heavy sales tax (that’s what a tariff is) to Washington on a commodity that none of them can operate without.
A better way to sort out which production is “excess” might be to let buyers and sellers in the market decide for themselves.