New boss, identical to the old boss
In the countryside and as president-elect, Joe Biden has sworn that his trade policy will be different from that of Donald Trump. He promised to work specifically with other democracies, saying, âI’m not looking for punitive trade. The idea of ââpointing fingers in the eyes of our friends and kissing autocrats doesn’t make sense to me.
And a glowing joint statement announcing a U.S. decision to temporarily suspend its Section 232 tariffs appears to live up to that promise. The United States will lift tariffs on steel and aluminum imports from the European Union while the EU will suspend its retaliatory tariffs on a host of American items, including Harley-Davidson motorcycles, Levi jeans and bourbon whiskey. The pact will “restore historic transatlantic steel and aluminum trade flows” and lead to “joint action to defend workers, industries and communities against global overcapacity and climate change.”
But there is more to it, and not much is good news for free trade advocates. What not to like? A lot, in fact, especially if you’re someone who values ââindividual freedom, economic opportunity, open markets, and policies that treat people fairly. The deal simply swaps one type of protection for another – Trump tariffs will be replaced by a quota system that automatically reimposes tariffs when imports exceed a set threshold.
On the bright side, there may be modest benefits for some users of steel and aluminum who have fallen victim to tariffs. This arrangement only applies to the EU, however, imports from most other countries will continue to be restricted. The US metals market is expected to remain tight and overvalued.
Additional benefits are likely to flow to exporters who have faced retaliation from the EU; they may be able to start rebuilding some lost overseas sales.
But simply removing the 232 tariffs, which President Joe Biden could accomplish with the stroke of a pen and without the need for lengthy international negotiations, would yield much better results.
The dark side of this deal is what it tells us about the administration’s trade policy priorities. Unfortunately, these policies are made by and for protectionists. The rest of us, however, will end up poorer for it – higher prices, less choice, and greater income inequality. It’s a system in which the rich are rewarded with favors from the government, while ordinary Americans find themselves stuck living with inefficiencies and paying the higher costs.
A closer look at the steel sheds light on the situation. Even before Trump’s tariffs were imposed on imports from all countries in March 2018, America already had what were arguably the highest steel prices in the world. More than 200 anti-dumping / countervailing restrictions (to offset unfairly low import prices by foreign firms and subsidies from foreign countries, respectively) on iron and steel imports had made the United States a high-priced island in a sea of ââsteel at a price.
The additional tariffs only pushed the prices up. The market analysis service Steelbenchmarker reported on November 22, 2021 that the US price of hot-rolled steel was more than double (122%) the global composite export price and 82% higher than in Western Europe. These prices are good if you are an American steel producer, but not so good if you are a consumer. And there are a lot more consumers than producers.
Steel production in the United States is a small business. In 2019, there were 144,000 employees in steel mills. They added $ 31 billion in value to the economy, which is equivalent to 0.15% of GDP. However, companies that buy steel and do useful things with it have a much larger footprint. They employ 6.7 million workers and produce an economic added value of $ 1.1 trillion (5.4% of GDP). Thus, steel users employ 46 times more people and add 35 times more to the GDP than steel producers. US manufacturers of finished products may find it very difficult to compete with imported products made with world-priced steel.
It helps to understand the European perspective on the tariff dispute 232. EU officials issued a statement saying they still believe the tariffs violate US obligations under the World Trade Organization. . They almost certainly do, because most trade policy experts consider Trump’s claim that the tariffs were necessary for national security reasons to be false. The EU has found it virtually impossible to deal with the scowling protectionism of the Trump administration. In an effort to rebuild a working relationship with the United States, the EU regretfully decided to achieve temporary accommodation with the smiling protectionism of Team Biden.
Where does all this leave the international community? Much of Europe eagerly awaited Biden’s presidency; instead, they have a weak substantive change agenda – simply a revised version of Trump’s protectionism with a friendlier face. As our country ignores trade rules it dislikes, other nations are encouraged to do the same.
America is the world’s largest trading nation and its second largest exporter. Our workers, businesses and consumers have benefited enormously from the economic growth stimulated by trade with other countries. Rather than disregarding the United States’ international obligations, the Biden administration should restore its support for the rules-based global trading system by leading by example. We should follow these rules ourselves.
Dan Pearson, former chairman of the United States International Trade Commission, is a trade policy researcher at Americans for Prosperity.