Imposing 266% Tariffs on Chinese Steel Imports Will Punish US Manufacturers and Consumers, Not China | American Enterprise Institute - AEI

2022-05-28 13:55:54 By : Mr. Roben LUO

An article in the WSJ last week (“U.S. Imposes 266% Duty on Some Chinese Steel Imports“) inspired Don Boudreaux to write a post on Cafe Hayek titled “A Neighborhood Tale.” That same WSJ report inspired me to re-write that article from a pro-consumer, anti-protectionist, anti-corporate welfare viewpoint as a counterpoint to the WSJ article’s typical pro-producer, pro-crony capitalism, pro-protectionist, pro-tariff perspective. Here’s my pro-consumer re-write:

New Title: U.S. Imposes 266% Duty on Some American Manufacturers Buying Chinese Steel Imports

The Department of Commerce imposed preliminary duties on American companies who purchase imports of cold-rolled steel, used to make auto parts, appliances and shipping containers, from seven countries including China, whose steelmakers  willing, cost conscious American customers were slapped with a massive tariff.

The duties, set at 265.79% for on American customers of Chinese steelmakers, will be imposed within the next week but must still be confirmed in a final determination scheduled for this summer. They are meant to punish dumping, or selling below cost. to improperly gain market share  low-cost Chinese steelmakers who compete successfully for US market share against less efficient, high-cost American steelmakers. Chinese officials  American steel buyers like GM and Ford have denied  welcomed the practice of Chinese companies supplying low-cost steel for the economic benefits those low-cost inputs provide for their domestic steel-using manufacturing operations, which support thousands of American jobs.

After enduring one of their worst downturns ever, American steelmakers are  Big Steel is now counting on crony capitalism and legal plunder through tariff protection to help ride out a weak market. A slowdown in the steel-heavy oil-and-gas industries combined with a boom in Chinese exports has deflated steel prices around the world, and greatly benefited US manufacturers like Ford and GM who use steel as an input.

The benchmark hot-rolled coil index fell 35% in 2015 to under $400 per ton, contributing to a $1.5 billion loss at U.S. Steel Corp., and an almost $8 billion loss at ArcelorMittal, the world’s biggest steelmaker, which has big operations in the U.S.

Both those companies have had to lay off U.S. workers and were behind petitions  self-interested crony capitalist efforts to impose protective import tariffs on a range of steel products, including cold-rolled steel, to financially benefit the shareholders of U.S. Steel and ArcelorMittal.

Lakshmi Mittal, CEO and controlling owner of ArcelorMittal, in a recent interview said he was counting on crony capitalism and legal plunder via tariff protection to help save his high-paid job and the wealth of his U.S. mills  shareholders. heavily concentrated in northern Indiana. Tariffs  Crony capitalism and special favors from legislators and government bureaucrats, Mr. Mittal said, “will help prices our bottom line.”

But can corporate welfare, crony capitalism and tariffs really save the American steel industry?

Analysts say trade protection will prop up prices, but can’t be expected to save beleaguered  inefficient Big Steel companies or improve market demand, especially in the oil and gas segment.

“There’ll be a short-term benefit,” said John Packard of Steel Market Update. ”However, in the long run, the U.S. mills and Big Steel are always going to want more tariffs and more addictive corporate welfare, and it’s questionable how much more [protection from more efficient foreign producers] they can get.” The U.S. already has anti-dumping duties  corporate welfare/legal plunder in place for Big Steel on 19 categories of Chinese steel. And the U.S. needs some imports because U.S. demand for manufacturing production in the U.S. —regularly over 110 million tons—is far higher than the U.S.’s annual production of around 80 million tons.

Although China is only the seventh biggest exporter of steel to the U.S., behind Canada, Brazil, Russia, Mexico, South Korea and Turkey, Chinese steelmakers have received the most attention because they have the ability to disrupt the U.S. market  provide steel for American manufacturers at the lowest prices. Their prices tend to be 20% to 50% lower than anybody else’s, providing great value for US firms. And because the volumes of its exports are so massive, Chinese steel is ending up everywhere. China last year exported more steel—100.4 million tons—than any other country except Japan produced.

The other countries supplying steel to American buyers that will be affected by the duties on American steel-using manufacturers are Brazil, India, Japan, Korea, Russia and the U.K.

Besides the fates of the individual companies that are part of Big Steel, the tariff debate, by imposing higher costs on American manufacturers and steel-using companies is landing in a campaign season where trade looms as a potentially major issue.

The campaign season and the rise of Donald Trump are renewing focus on the U.S. trade deficit with China, which averaged $1 billion a day in 2015. Mr. Trump has said he would impose large tariffs on Americans buying goods from China Beijing , alarming U.S. officials, steel using American firms, and industry leaders who back free trade.

The Obama administration has been discussing steel production with China, which pledged to trim output by up to 150 million metric tons over five years as a form of corporate welfare for American steelmakers. Chinese Premier Li Keqiang told U.S. Treasury Secretary Jacob Lew this week in Beijing the country would press ahead with economic overhauls to shrink the steel industry and assist the US government in its efforts to provide corporate welfare to Big Steel.

Industry officials and labor groups say China’s planned cuts amount to just a fraction of overcapacity and don’t go nearly far enough in providing corporate welfare and legal plunder to the shareholders of Big Steel. “Talk and dialogue must not be a substitute for action as addressing the root cause is urgent,” said United Steelworkers President Leo Gerard on behalf of his shareholders.

Meanwhile, American firms like automakers Ford and GM that purchase steel to make cars in the US cautioned the Department of Commerce that raising steel prices through protectionist trade policies would make them less competitive, possibly leading to reduced production and worker layoffs or reduction in hours and overtime. And a spokesman at the Bureau of Consumer Protection (BCP) at the Federal Trade Commission, whose mission is to “protect American consumers,” spoke on behalf of America’s 250 million consumers. “Regrettably, the 266% tariffs on Chinese steel won’t punish China as much as those taxes will punish millions of Americans with higher prices for everything that contains steel, including cars, appliances, tractors, tools, construction materials, wind turbines, forklifts, pipelines, and airplanes,” said the BCP spokesman. “To further our mission to protect American consumers, we strongly object to 266% tariffs because they are a form of legal plunder, crony capitalism and corporate welfare for Big Steel.”  

Bottom Line: It’s disappointing that when the media, including the pro-trade WSJ, cover a tariff story like this one, they always write it almost completely from the viewpoint of the inefficient, high-cost domestic producers, who of course support trade protection and tariffs because it’s a form of crony capitalism, legal plunder, and corporate welfare that benefits the shareholders of domestic firms, Big Steel in this case. What never gets mentioned in media reports about trade protectionism is the fact that protectionist trade policies like a 266% tariff provide significant, concentrated benefits for a small number of well-organized, rent-seeking domestic firms like Big Steel…. but at the expense of much higher costs and possible job losses that are imposed on hundreds of millions of disorganized and dispersed consumers and the domestic firms that use steel as an input. As Bastiat taught us back in 1850, we should “treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.” Tariffs of 266% on Chinese steel imports will further the interests of Big Steel and their shareholders, to the significant detriment of consumers and therefore the human race, and are therefore objectionable and injurious.

The funny thing about tariffs is they are sold as “pro-worker” but they really are just “pro-business.”

In a similar way the left’s “free” college tuition mantra is nothing more than a way to enable their inefficient cronies in academia to charge ever higher prices for a product that produces lots of over-educated baristas who demand minimum wages that displace low skilled workers. Now THERE’S crony capitalism at it’s finest.

It would be so much simpler and compassionate — and guaranteed to work — if we raised steel workers wages by 266%.

Your views of the steel industry are unfortunately extremely limited. The USW represents over 860,000 american workers. With that being said the tariffs that were imposed help to ensure layoffs and lowered capacity do not continue in the American steel industry. The UAW represents about half as many members and thus half as many jobs. China is flooding virtually every market in the world with steel and aluminum, but that’s not the biggest issue. The issue lies with the fact that Chinese mills are unfairly subsidized by their government and often sell their exported material at or below their costs. This is something that the market doesn’t allow for in market driven economies.

The issue lies with the fact that Chinese mills are unfairly subsidized by their government and often sell their exported material at or below their costs. This is something that the market doesn’t allow for in market driven economies.

It actually does. Let me ask you a series of questions:

Why is China flooding the market?

Is China selling below their cost to make steel or below the U.S. cost to make steel?

If below their cost, you have to look at their intent. Is the reason to reduce a temporary over supply or to run the U.S. steelmakers out of business to raise prices later?

Obviously and quite understandably, the average consumer and business steel consumer in the short run just want the lower price, but should the role of our government be looking out for the long-term interests of U.S. consumers and business?

Personally with all the hacking and intellectual theft the Chinese have been caught doing red-handed the last couple of decades, I don’t trust China’s motives. Maybe I just watch too much 60 Minutes.

“Is China selling below their cost to make steel or below the U.S. cost to make steel?”

What possible difference could it make? And who cares what anyone’s motives are in selling goods cheaply? A low price is a good thing, right?

“ Is the reason to reduce a temporary over supply or to run the U.S. steelmakers out of business to raise prices later?”

When you took economics didn’t your excellent professor teach you that a natural monopoly is almost impossible to achieve in the classic sense of controlling supply in order to keep prices high?

The only known success is the the DeBeers Group.

No, Walt, there is no role for government in making American consumer pay higher prices for products made with steel than they would in a freer market.

” A low price is a good thing, right?”

Ron, maybe, maybe not. Let’s keep all of our oil and gas by not exporting it and keeping prices low in the U.S.. We are, after all, only concerned with the short-run, right? You can trust China’s motives if you like, but I don’t (nor North Korea today)

Your response barely brushed up against my comment in passing.

“Let’s keep all of our oil and gas by not exporting it and keeping prices low in the U.S.. We are, after all, only concerned with the short-run, right?”

I assume this is meant to be sarcasm, but it doesn’t make sense in either case.

What Chinese motives do you not trust? You can trust China’s motives if you like, but I don’t (nor North Korea today)

Don’t you just hate it when companies flood the market with inexpensive electronics or clothing or gasoline? I really dislike paying less for the things I buy.

How can it be “unfair” for the Chinese to subsidize Chinese steel factories, but fair for Americans to subsidize theirs?

Why should it be considered “unfair” to sell below cost? Price is not set by cost. Cost simply determines profit or loss.

Instead of blunderbuss tariffs, rewrite the tax code to put all manufacturing on equal footing. http://WWW.Fairtax. org

Remember the old saying you get what you payed for Do you really want your bridges,cars,building made with that stuff ?

What, Chinese steel? Sure, why not?

You do that want Chinese Steel most of the time they have no idea the chemical analyst that is in it ( certification ) I work I the steel industry and most people want American Steel with the exception of stainless . Canada also provides a very good certification that shows all the chemical properties

You have made the point that a tariff on imported steel is unnecessary, because most people want American steel, and presumably that’s what they will buy without being forced to do so.

And it’s OK for the auto industry to have record profits too

And it’s OK for the auto industry to have record profits too

And it’s OK for the auto industry to have record profits too

And it’s OK for the auto industry to have record profits too

And it’s OK for the auto industry to have record profits too

And it’s OK for the auto industry to have record profits too

Wow! Paul, your “post comment button got stuck.

Sounds like lobbyist supporting the auto industries of the Michigan. The last time I checked, auto prices are up and have not gone down. Perhaps the price of the car should be lowered, gas should be lowered to the equivalent ratio to that of oil also. North Korean irons that are purer than taconites are sold for next to nothing to China; while the Chinese government undermines the sanctions imposed on North Korea. These are coming into America, and the author supports the idea of undermining the progressive nations, producing goods while protecting the humanity, environmental, labor rights, etc. Industries such as in China, India pollute at a criminal rate that would not be able to operate in USA. Too many things are omitted by the professor of economy… One would wonder what is being taught and learned…

I have worked with Steel daily for nearly 30 years, and while I support a free market the author of this article needs to be careful of his shotgun application of free market economics.

Specifically, I work in Hot Rolled Coil. The quality of the steel from China is worse than any of the countries including Russia, from which I have processed steel. In my experience, the Chinese lack gauge and width control, their surface is inferior and to exacerbate the matter, the Chinese have no regard for Standards and tolerances such as ASTM.

To paint such a broad brush is foolish. Lets compare apples to apples. The Chinese supply inferior HRC at low prices solely because of the over capacity they built into their domestic steel industry.

Perhaps if the Chinese Government did not subsidize their product the free market would see it for what it really is.

To CLARIFY I do not work for “Big Steel” I operate a coil processing facility. Our inventory is sourced from the LOWEST cost producers possible.

Caveat emptor in the case of HRC from China! One gets what one pays for.

The Chinese price has NOTHING to do with being efficient, and everything to do with Government subsidies.

Why is your steel sourced from the lowest cost producer, I assume china, if there are problems with it?

BTW Maybe we should take a moment to thank all those Chinese taxpayers who are helping us pay for the steel we buy from them through government subsidies.

Given that Chinese steel is vastly inferior to US, then US steel producers should have no reason to fear Chinese steel, and such a tariff is unwarranted.

Jon, but what about the problems the inferior products cause before their inferiority is discovered? The Chinese seem to have no problem selling us bad products. There are many documented cases of them doing so.

My first set of steel rotors on my truck made in China lasted 3 years and they were completely rusted out and dangerous to use, and my second set made in the U.S., that i still have, has lasted 10 years and they are still in great shape. Maybe house and car safety is not important to you, but it is to me and many people I know.

http://www.atsdr.cdc.gov/drywall/docs/Final%20drywall_factsheet_05-2-14.pdf

Ah, but Walt, you made my point: you stopped using the inferior product. Furthermore, you did say that there are documented cases of them selling dangerous products. It is quite well known.

You appear to be arguing for a VERY costly government solution to a problem that is being handled by the market – as your anecdotal example shows. If consumer safety is the real issue here, then as Jon points out, the problems are well documented and consumers can choose to avoid problems by buying from other manufacturers as you have done.

But I suspect the real tariff story has more to do with crony capitalism than consumer proection.

Jon, I also stop using Chinese plumbing elbows for gas, but not before a leaky one filed up a house with natural gas (how does less than half a pound of pressure blow a hole in an elbow?). In over 30 years, I never had that problem with U.S. made plumbing fittings, and now it’s difficult to find ones I trust (do not buy plumbing fittings that keeps gas inside of a pipe at big-box stores).

Sometimes the well-known part comes after the fact. The Chinese seem to have no conscience about selling bad parts.

Ron, there’s simply no excuse for brake rotors to complete rust out in three years and brake lines in 5 years as the Chinese products commonly do. I’ve been wrenching on cars since the late 1960s. Well-known does not matter when you buy something that has unknown bad parts on it.

You may be missing my point. You can’t prevent any and all bad parts from ever being offered. I’m not defending Chinese products, I’m saying your response is the correct market response. Don’t buy those things from Chinese manufactures anymore. In addition you have broadcast your complaint, so others will be wary. If enough people follow your example now that the problems are well known, Chinese companies will go out of business and tariffs (higher prices for consumers) will be unnecessary.

The wrong-headed non-market response is to place a high tariff on Chinese products so people are forced to choose other manufacturers’ products.

Something to keep in mind about Chinese manufacturers is that many are government owned. The incentives managers face are not always related to quality or satisfying customers, but may be related to volume of output.

I’m reminded of a story about Soviet glass manufacturers under communism. If plant managers were reworded based on how much weight they produced, builders would get glass that was too thick. If they were rewarded based on square meters of glass produced, the glass would be too thin. Don’t know how true it is, but it makes a good point.

No wonder the Soviet Union collapsed.

As market principles are adopted more and more in China, those problems should disappear. Remember that Japanese products had the same problems and poor reputation in the ’70’s. Now Japanese products are seen as the high end.

You may be a professor, but you don’t know JACK about steel.

email me for REAL hard DATA about Chinese steel.

I have OBJECTIVE, QUANTIFIABLE, DATA proving the lack of quality.

It isn’t really necessary to know much about steel. This is an Econ blog, and the discussion is about protectionism, crony capitalism, and the wisdom of forcing people to make choices they might not otherwise make.

Steel just happens to be the subject at hand. It could be any commodity on which government is proposing import restrictions.

When someone starts-off by citing ridiculous figures like this, you can immediately dismiss their argument for lack of logic and reason.

The gradual introduction of taxes or ‘tariffs’ imposed on targeted trade slowly redirects consumers to more reasonable priced products while encouraging manufactures to develop locations inside the US that could become profitable.

The reality is we’re stuck in a declining economy, while moving manufacturing offshore has created lower priced products for consumers, it’s created a consumer base with lower income and higher debt.

This downward spiral can not continue, the US economy’s become dependent on outside manufacturing ..its a threat to our economy and to national security.

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