October 6, 2016

October 6, 2016 | Commentary on Trade, Economic Freedom

Feds Should End Protectionist Steel Tariffs

Despite slow growth in the global economy, some countries — most notably China — are producing large amounts of steel. The Organization for Economic Co-operation and Development estimated that global steelmaking capacity last year exceeded global demand by approximately 700 million metric tons. Foreign increases in capacity and production in the midst of a soft market have infuriated many in the U.S. steel industry, because it has driven down the commodity’s global price.

U.S. leaders once again face the age-old question: What should the government do when foreign governments subsidize their industries rather than adapt to market demands?

Domestic steel producers are calling for broad import restraints on top of the 85 anti-dumping and countervailing duty orders already imposed on various steel imports. These existing tariffs, they say, “have not been sufficient.” What’s needed, they urge, is a “safeguard” tariff, as allowed under section 201 of the Tariff Act of 1930.

A recent Heritage Foundation report examines how these types of protectionist, special-interest tariffs affect other domestic industries. It concludes that the best economic move for Washington to make is to eschew additional tariffs. Far better to keep U.S. markets open to competition and innovation.

Last year, domestic steel-makers employed roughly 147,000 people, producing steel for both domestic consumption and export. Meanwhile, domestic manufacturers that use steel in the production process employed 6.5 million people. The construction industry supported another 6.3 million American jobs last year.

For a tool and die maker, steel represents between 25 and 35 percent of the total value of a finished product. Increases in the price of this vital intermediate good force tool and die makers to raise their prices or find some way to absorb the extra cost. This holds true for all companies using steel or products made with steel.

You only need to look back 14 years to see how this plays out in real life. In 2002, President George W. Bush imposed tariffs of up to 30 percent on many steel imports through section 201. A study by the Consuming Industries Trade Action Coalition found that approximately 200,000 individuals in steel-consuming industries lost their jobs that year because of the tariffs’ downstream effects.

Steel-consuming industries are not the only ones affected by higher steel prices. While U.S. steel-makers deplore other countries’ pouring steel into the market at “unfair” prices, many American consumers worry about how they will afford a washing machine or refrigerator when the old one breaks down. These and many other household items — from lawn mowers to grills — are made of steel, and import tariffs raise the price of those goods.

The special interest tariffs that steel-makers plead for are, in the end, just another tax that winds up being paid by American consumers — just one more thing that makes it harder for average families to get by.

Washington should take protectionism off the table. Instead, the U.S. Trade Representative, the U.S. International Trade Commission, the Commerce Department, and Congress should work together to keep U.S. markets open to innovation and competition.

Showing favoritism for a certain industry inevitably does more harm than good. Rather than bestow short-sighted favors on domestic steel producers, Washington should take the long view and embrace free trade as the one, proven method of expanding economic opportunity for all.

About the Author

Tori K. Whiting Research Assistant
Center for Trade and Economics (CTE)

Related Issues: Trade, Economic Freedom

First appeared in the Washington Times.