Steel, Aluminum Tariffs are a Major Shift in US Policy

President Trump announced significant import tariffs on steel and aluminum. This is a major economic event. Here is how The Daily Caller described it:

President Donald Trump announced Thursday a host of new “punitive” tariffs that will be implemented as soon as Monday.

Trump made the announcement during a meeting with industry executives at the White House, arguing that domestic producers have been treated very unfairly by previous administrations.

“What’s been allowed to go on for decades is disgraceful,” he said at the meeting. “And when it comes to a time when our country can’t make aluminum and steel, and somebody said it before and I will tell you, you almost don’t have much of a country. Because without steel and aluminum, your country is not the same. We need it. We need it even for defense, if you think, we need it for defense.”

“We need great steel makers. Great aluminum makers for defense. So, we will probably see you some time next week. We will be signing it in. You have protection for the first time in a long while and you are going to regrow your industries. That’s all I’m asking. You have to regrow your industries.”

The rates for aluminum will be 10 percent, while steel will be affected at a rate of 25 percent, and have “no endpoint,” according to Fox News’ John Roberts.

The president hinted at his reasoning for the tariffs in a tweet earlier Thursday morning.

“Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world,” he wrote. “We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”

This is good news yet some are troubled by it, like the stock market which fell 500 points on the announcement. But is standing behind president Trump.

Trump is correct – these industries have been decimated by decades of bad policy. America had a thriving steel industry before, during and after World War II. This industry was born after the US Civil War under steel innovator Andrew Carnegie, a poor immigrant from Scotland who became one of America’s richest industrial tycoons. He ended up giving away the equivalent of an $80 billion fortune in today’s money.

Carnegie “invented” the modern steel industry and its technologies. This industry gave birth to the modern 20th century world with ample supplies of low-cost, high-quality steel used in everything from ships to automobiles to railroads to skyscrapers and everything else.

This thriving industry gave America victory in World War II but US labor unions throughout the 1950s, 1960s and 1970s destroyed the industry with outrageous wage demands, strikes and violence. In other words the steel industry was ruined by a strong force from the socialist left, just as US unions ruined the auto industry, the railroads and many other sectors of the postwar US economy.

Another socialist force reared its head at the very same time. Nations like India and Japan, that started with cheap labor, gave generous government subsidies to their steel industries in the 1960s and thereafter. This allowed Japan and India – and today China – to “dump” cheap subsidized steel on the American market, undercutting US producers.

Today China is the world’s largest producer by far. Wikipedia reports:

As of 2013 China produced 779 million metric tons of steel each year, making it by far the largest steel producing country in the world. This is compared to 165 for the European Union, 110 for Japan, 87 for the United States and 81 for India.

The US industry got hit by another tidal wave from the socialist left in the 1970s and 1980s – new ‘green’ laws that strangled it. High union labor costs, along with the ‘dumping’ of cheap steel from overseas left the industry unable to finance cleaner new technologies and US companies folded one after another. Wikipedia reports:

Bethlehem went bankrupt in 2001. In 1984, Republic merged with Jones and Laughlin Steel Company; the new firm went bankrupt in 2001. US Steel diversified into oil (Marathon Oil was spun off in 2001). Finally US Steel reemerged in 2002 with plants in three American locations (plus one in Europe) that employed fewer than one-tenth the 168,000 workers of 1902. By 2001 steel accounted for only 0.8% of manufacturing employment and 0.8% of manufacturing output.

The good news is that the US industry has been slowly coming back over the last few decades. Through his Bain Capital venture capital firm 2012 Republican presidential candidate Mitt Romney financed the upgrade and improvement of a company called Steel Dynamics starting in 1994 in Fort Wayne, Indiana, a member of a new generation of US producers that now has 6,000 employees.

In 2007 one of the world’s most modern steel plants was built in Alabama, USA by the German firm ThyssenKrupp.

President Trump now is jumping into high gear. By restraining the ‘greenies’, slapping tariffs on imports and keeping the unions at bay he plans to rebuild the US steel industry, and the aluminum industry too.

This is doable but there are worries. After all we know that steep tariffs on all imports into the US in the wake of the 1929 stock market crash caused tariff retaliation among foreign nations. This slowed international trade, causing the US economic depression to spread globally.

This is less likely to happen today since the Trump tariffs apply only to two commodities – steel and aluminum – after foreign producers already have stacked the deck for themselves. Trump is simply compensating for decades of US inaction and unfair trade practices by foreign nations. He is ‘leveling the playing field’ of international trade in America’s favor for once, not tilting it.

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