Debate over steel tariffs misses the mark
In his August 2017 editorial, “Tariff Debate Pits Producers Against Consumers,” chief editor John Sprovieri clearly posed the dilemma of low-priced Chinese steel imports, which have severely impacted the U.S. steel industry. John explained that proposed quotas or tariffs would protect the steel industry, but harm steel users, whose cost of steel will then be higher than their foreign competitors. Some analysts believe we could lose more jobs in the steel-using industries than we save in the steel-producing industry. John ends his editorial as follows: “In short, protecting one industry could hurt another. Which would you choose?”
My answer is that the government and John are asking the wrong question. We spend millions of dollars every year on dumping allegations and other appeals against low-priced foreign products. Almost always, we wind up with the same dilemma as with steel today. Applying quotas or tariffs selectively to narrow industry segments will always create U.S. winners and losers. Instead, we should find ways to create only U.S. manufacturing winners. I will explain.
The reason our country is so vulnerable to dumping and other aggressive actions by foreign companies is that our industries are not sufficiently large and price-competitive before the dumping starts. We have had trade deficits every year since 1979. In recent years the trade deficit, excluding petroleum, has been around $700 billion per year, representing about 5 million manufacturing jobs. With a goods trade balance, our manufacturing output and employment would be approximately 40 percent higher. Companies would be busier and more profitable. They would invest more in product and process development, be more productive, and be better able to compete with low-priced, even dumped, foreign products. If our steel output were 40 percent higher, the government would not be concerned about minor losses to imports.
We should stop making thousands of lawyers rich litigating over trade alternatives, none of which is near optimal and never solves the problem long-term. Instead, we should take the necessary steps to make and keep U.S. industry overall competitive enough to eliminate the trade deficit, providing good jobs to millions of Americans. When we are that competitive, the dumpers will not be able to price low enough to take significant market share here, making such actions ineffective.
The Reshoring Initiative has proposed a Competitiveness Toolkit, by which the administration can identify and select the actions that will make our industry competitive enough to bring back up to 4 million manufacturing jobs. Our recommended actions are, in our priority order:
- Building a skilled workforce like the one in Germany.
- Enacting a 15 percent corporate tax rate.
- Implementing a value-added tax, like almost all other nations.
- Decreasing the value of the U.S. dollar by 20 percent.
- Reducing regulations and healthcare costs, like Germany and Switzerland.
- Universal use of Total Cost of Ownership for sourcing and siting decisions.
Some of these actions are easy to implement. Others, like building a skilled workforce, will take decades. Let’s ask the right questions, pick the best actions, and get started now!