Has America started a war on trade?

[Greadius]

Originally posted by MrPresident
American steel industry is inefficient and hasn't gone through the same restructuring and modernisation of other developed nations. This tariff is the result of pork barrel policies and nothing more.

A shade more research on this revealed...
European and Asian modernization took place because of government subsidies. That is, the government paid the industry to update and become more competitive. The U.S. government hasn't done this. Their lack of competitiveness now is because they are comparitively out of date. For Bush, it is politically easier to raise tariffs than attempt to subsidize an industry since he doesn't need Congressional approval.
The net result of tariffs and government-subsidized industries competing on the world market is nearly identical, so I don't see why one method of 'solving' the problem is any more admirable or acceptable.

Originally posted by MrPresident
America would only have a problem in this way is if there was a world war cutting off America from its suppliers in say Europe, South America and Asia. Now I my be considered an optimist but I think this is highly unlikely. The Cold War is over its time people like you realise this.

Weren't you just saber rattling with the great EU superpower that is just around the corner?
Really think Europeans can agree on a hegemonic foreign/defense policy by 2010, and have an integrated military (or even speak a similar language).
Economic superpower maybe; but then there are several of those on the way.

 

[Daaraa]

I agree with Greadius except on the identicality (sp) of tariffs and government subsidized upgrades.
Tariffs seem to be on the front page of the news and make people mad.
Governement subsidized upgrades are usually buried on page 20 something of the WSJ or London Times.

 

[MrPresident]

Really think Europeans can agree on a hegemonic foreign/defense policy by 2010, and have an integrated military (or even speak a similar language).

Maybe not an integrated military but certainly some sort of hegemonic defense policy. We already have an European rapid deployment force. Anyway, the military power of the different countries of Europe will increasingly be used collectively.

Weren't you just saber rattling with the great EU superpower that is just around the corner?

Having a European superpower will have not mean that there will be a world war with America. Remember a lot of EU members are part of NATO. If you think that having two superpowers in the world automatically means they will some time in the future come in conflict seems very pestmistic too me. Also how can you possibly say whether subsidies or equal to tariffs. The experts can only guess at this and any decision is bound to create a lot of controversy. How do you know that Asian and EU modernisation came from government subsidies. In the UK, CORUS (major steel producer) modernisated without government intervention because it was facing a lot of competition from abroad and that was the only way it could compete. Sure modernisation usually equals job losses and this may be politically problematic for certain US congressmen but it has to be done. A tariff is simply not acceptable.

 

[SuperR]

Originally posted by Greadius
Okay, a few facts about the stupid decision.

1. Import competition has dropped 27% since 1998, so its not getting worse; however, the steel industry is going bankrupt.
2. Many of the steel industries that are major competition problems are government subsidized so they already have a major advantage over domestic producers.
3. The tariff does not apply to Canada, Mexico, or other developing nations

I think the last point is key because, if anything, it would help THOSE nations become competitive.
However, I'm against tariffs in general, and I don't think this one was an absolute necessity. Temporary displacement of workers has always been one of the negative side effects of free markets, its unfortunate Bush ignored this.

And for some reason, this decision is getting a lot of press, and makes the U.S. look protectionist and hypocritical.

Did you know that the US already imposes tariffs on steel and steel products on developing nations? There is an excellent book by Walden Bello called "Dark Victory" (might be a bit biased against US as a whole in the interpretations but the fact are still there) on Trade, Third World Debt, and other topics that are related to this.

The US crumbling steel industry is nothing new, it's been since the early 80's that they are tariffing foreign steel like madmen.

 

[Greadius]

Originally posted by MrPresident
Also how can you possibly say whether subsidies or equal to tariffs.

They have the same net effect on consumers in forcing them to pay more (through taxes or foreign competition). They have the same net effect on the industries in allowing them to operate in a less than optimum manner. The major difference is that one looks bad to the outside world, and one looks bad to the locals.

Originally posted by MrPresident
How do you know that Asian and EU modernisation came from government subsidies.

From CNN.com:
"He (U.S. Trade Representative Robert Zoellick) said the European Union did not "really approach the issue of steel with clean hands", noting that European nations had subsidized the industry by $50 billion during its restructuring from the 1970s to the 1990s"
"Zoellick also said China had given "another $6 billion to their steel industry last year in terms of subsidies"."

Opinion article, but it has a lot of the numbers:
http://www.econstrat.org/ammsteel.html

Three years of 30% tariff is pocket change compared to that.

CORUS modernized without government intervention? Until 1988 it was a government OWNED industry, how can that be without intervention? And the company is still not profitable after 14 years of privitization... ever wonder who picks up the tab on the net losses?

 

[amadeus]

I don't like the idea of these tariffs...if the steel industry in the United States dies, let it! That's capitalism. We shouldn't have to breast feed these steel workers. If they lose their jobs, well, then get new ones.

 

[PinkyGen]

I don't think the tariff is a bright idea. There is a chance the Steel industry might use this time to restructure, but I have a feeling they won't take advantage of the oppurtunity. Plus, it shall make things more expensive here, and piss off the neighbors. I do think Bush is doing it for the steel voters, which normally go Democratic. (Democrats are usually more protectionist than Republicans).

On the other hand, what the EU did with Bananas was just akin to tariffs. They were favoring their former colonies, who have more firms based in the EU. US companies like Chiquita were severely hurt by this.

 

[andycapp]

The United States has been the leading proponent of world "free trade" unfortunately it's actions don't match it's words and the latest tariffs on steel are just another example of that.

Lest I be accused of hypocrisy let me say that most countries indulge in protection to some degree and some more than others. Australia still protects some areas of it's manufacturing industry although not steel (as far as I'm aware) and the EU countries are notorious (in Australia anyway) for protection of their farming sector.

Eventually this will end up with the WTO although this may not necessarily resolve the matter. Which is a problem with the way the WTO works (or sometimes doesn't), however the real problem, as I see it, is more fundamental than that. When the worlds biggest economy and advocate of free trade acts in this way it sends a very clear message to everyone else - "free trade" will only occur in areas where the strong have an advantage and in other areas 'might is right' is the unspoken rule of trade.

The USA can hardly be suprised when the concept of "free trade" loses its gloss as the means to a more effective and fairer system of world trade - the consequences are a retreat into bilateralism and protectionism.

The former Australian Prime Minister Malcolm Fraser puts the argument more eloquently in this article

www.theage.com.au/articles/2002/03/06/1015365716390.html

 

[muppet]

Originally posted by rmsharpe
I don't like the idea of these tariffs...if the steel industry in the United States dies, let it! That's capitalism. We shouldn't have to breast feed these steel workers. If they lose their jobs, well, then get new ones.

But the point of the American posters is that:

The rest of the world is not practicing capitalism. The US steel industry is being bankrupted by SUBSIDIZED foreign imports.

Personally. I was thinking that if the rest of the world was subsidizing steel, then the US should be happy with cheap steel and move on to more lucrative industries. But, other posters have already pointed to the strategic importance of having a domestic steel industry.

 

[muppet]

Originally posted by PinkyGen
I don't think the tariff is a bright idea. There is a chance the Steel industry might use this time to restructure, but I have a feeling they won't take advantage of the oppurtunity. Plus, it shall make things more expensive here, and piss off the neighbors. I do think Bush is doing it for the steel voters, which normally go Democratic. (Democrats are usually more protectionist than Republicans).

I remember from economics courses a long time ago, that US steel industry was hard hit by foreign competition. Like Japanese steel for example. In hindsight, analysts pointed to the failure of American steel industry to re-invest profits to upgrade technologies. They placed the blame exclusively on American steel corporations being too greedy and squandering profits.

Is it possible this is a reccuring theme? Every so many years the steel industry is going to be bailed out by Washington because it did not re-invest in new technologies as it should have? In a sense then, isn't Washington doing the very 'subsidization' that it accuses foreign government of doing?

 

[MrPresident]

The reasons for this tariff are purely political. America has some important elections coming up where there are several major steel producing areas which could go either way.

The US steel industry is being bankrupted by SUBSIDIZED foreign imports.

Are you saying that no industry in America is, or ever has been, subsidised? Most developing countries have to subsidy these such industries because otherwise they would never develop. I would much rather see countries like China, Brazil etc producing steel than the United States. Also because steel is an traditional industry there are higher costs if it goes bankrupt than say Dotcoms. Traditional industries usually dominate the area they are situated and employ highly skilled labour. When the steel companies collapse it causing structural unemployment, meaning that the unemployed are only trained to do one sort of job and they find to hard to get another one. So areas that had traditional industries that are now gone usually have very high unemployment rates (especially among the young). This effects the local area through the multiplier effect, meaning that an unemployed worker has less money to spend on consumer goods meaning the local shopowner has less money etc. So the government can do two things, retrain the workforce or stop the industry from going bankrupt, Bush has chosen the latter.

But, other posters have already pointed to the strategic importance of having a domestic steel industry.

I would like someone to tell me the importance of having domestic producers of strategic goods? I don't know that much about the inter-workings of the US steel industry but from my knowledge I don't think there are that many major ore mines in the US. So whats the point in safeguarding a producer if you rely on imports for its raw materials. Also I would like to point out the US's reliance on foreign oil (especially Arab) which is much, much more important than steel as a strategic resource. What about the other stragetic resources, such as rubber - not much production of that in America, coal. Also if there was a war do you think that people would not be prepared to produce steel in America, surely the huge war profits that could be earned would attract someone to convert their factory.

the EU countries are notorious (in Australia anyway) for protection of their farming sector.

Ah the infamous Common Agricultural Policy. Not that I want to blame any of our EU friends (*cough* France) but Britain is the leading opponent of this policy. Anyway it is getting its long overdue overhaul very soon as the soon-to-be EU members would be, if the policy is kept at its existing levels, due some very large payments which would almost certainly bankrupt the EU. So basically watch this space.

On the other hand, what the EU did with Bananas was just akin to tariffs.

I beg to differ. What the EU was doing was akin to giving aid to the developing countries of the caribbean (I know giving aid is not too familar to our American cousins but try to imagine it). What the US is doing is protecting its domestic industry at the expense of my developing countries (including middle-income countries such as Brazil and China).

 

[Maj]

I don't like the idea of these tariffs...if the steel industry in the United States dies, let it! That's capitalism. We shouldn't have to breast feed these steel workers. If they lose their jobs, well, then get new ones.

Tell that to a steel worker. And while you're at it, list for him all the possible jobs he could find with only a high school education (or less) in a town that was soley supported by the steel factory in the first place.

Sometimes I really wish that one day you get stuck in the mud you believe it so easy to get out of. Maybe then you'll be willing to reach for that big red, white and blue nipple and realize life isn't as black and white as you imagined it.

As for the tariffs, most nations will do whatever is in their power to prevent sectors of their economy from collapsing. There are easy ways, and there are hard ways. Given the hegemony of the United States, Bush has elected to try the easy way, which is also the wrong way from an international point of view. But since when did the U.S. care what the rest of the world thought of them?

- Maj

 

[MrPresident]

Tell that to a steel worker. And while you're at it, list for him all the possible jobs he could find with only a high school education (or less) in a town that was soley supported by the steel factory in the first place.

This is not a reason for supporting an inefficent industry. The fundamental rule of economics is there are scare resources for unlimited wants. If resources are used on an inefficient industry then the world loses out. Say 1,000 steel workers go unemployed but how many other people could get jobs using the resources they were using? Sure it is sad that these people are unemployed with few propects. However the answer is not to give them an unfair advantage over more efficient foreign competitors because that will cause the same unemployment in those countries. Since those countries are usually developing countries I think the unemployment would do them a lot more damage than America. If you think that I don't know the full problems when a traditional industry collapse then let me tell you where my family comes from, Jarrow, England. Have you heard of the Jarrow March/Crusade? There was over 60% unemployment after the collapse of an traditional industry. America is not the only one with these problems, remember that in future.

 

[Maj]

This is not a reason for supporting an inefficent industry. The fundamental rule of economics is there are scare resources for unlimited wants. If resources are used on an inefficient industry then the world loses out. Say 1,000 steel workers go unemployed but how many other people could get jobs using the resources they were using

So the government can do two things, retrain the workforce or stop the industry from going bankrupt, Bush has chosen the latter.

There are easy ways, and there are hard ways. Given the hegemony of the United States, Bush has elected to try the easy way, which is also the wrong way from an international point of view.

There. I hope that makes sense

I've neither given my support nor my opposition to this entire issue.

America is not the only one with these problems, remember that in future.

And is there ever anything done to prevent or curb such problems or do we just wait until the last moment to slap on a quick-fix solution to satisfy the short-term prospects?

- Maj

 

[knowltok2]

MrPresident, In one post you are for protecting Banana farmers who may not be as efficient as those elsewhere, and then you are for not protecting steelworkers who may be inefficient. Which is it?

As far as the US domestic industry of Bananas, We don't grow any here. The companies are American, but they are employing people in Central America to pick and process those bananas.

Free trade is a great thing, and it works wonderfully in theory, but dropping all barriers at once and letting the market sort itself out is not the way to acheive this. A gradual transition will be much better and cause a lot less in the way of pain and suffering along the way.

(I know giving aid is not too familar to our American cousins but try to imagine it).

When I try to imagine it I picture a war ravaged world in which one nation sent aid and helped rebuild much of it. I picture an enemy nation utterly flattened by the war rebuilt to the second strongest economy in the world in 40 short years. I picture round the clock flights to a besieged city that would have otherwise starved. These acts were not done alone, and the residents of the aided areas helped emensely and deserve tremendous credit, but I think that America is familar with giving aid. I don't want to lord these historical facts over anyone, but don't claim that Americans aren't familar with giving aid, it doesn't strengthen your arguement. .

RMsharpe: Try a little of that compasionativity. Your cold-hearted manner is not what government FOR the people is all about. Unrestricted capitalism has been proven to be a bad thing. Many of us disagree as to the amount of restrictions, but you are not going to find very many people who think that we should revert to the days of J P Morgan, Rockefeller, and Sinclair Lewis' "The Jungle."

 

[Greadius]

Originally posted by MrPresident
Are you saying that no industry in America is, or ever has been, subsidised? Most developing countries have to subsidy these such industries because otherwise they would never develop.

What American industry competes on the world market that recieves government subsidies? Farmers? Of course... every nation that creates a food surplus subsidizes farmers. Any others?

Originally posted by knowltok2
Many of us disagree as to the amount of restrictions, but you are not going to find very many people who think that we should revert to the days of J P Morgan, Rockefeller, and Sinclair Lewis' "The Jungle."

Sinclair Lewis was a Communist trying to convince people to join up the cause with that book
But you're being a little revisionist there... industrialization was a painful process in EVERY country it occured in, but the long term benefits can't be denied. There really isn't a possibility to revert to those times because we'd have to revert to an argricultural society first and modernize again.

 

[knowltok2]

Originally posted by Greadius
What American industry competes on the world market that recieves government subsidies? Farmers? Of course... every nation that creates a food surplus subsidizes farmers. Any others?

Sinclair Lewis was a Communist trying to convince people to join up the cause with that book
But you're being a little revisionist there... industrialization was a painful process in EVERY country it occured in, but the long term benefits can't be denied. There really isn't a possibility to revert to those times because we'd have to revert to an argricultural society first and modernize again.

I know Sinclair was a Communist. I was referring to the world he portrayed in "The Jungle". I also know we can't revert, I was trying to make a point to RM, that unrestricted capitalism is not a good thing. Given these clarifications, am I still trying to be revisionist? Let me know, because that is not my intent.

 

[Daaraa]

I would like someone to tell me the importance of having domestic producers of strategic goods? I don't know that much about the inter-workings of the US steel industry but from my knowledge I don't think there are that many major ore mines in the US. So whats the point in safeguarding a producer if you rely on imports for its raw materials. Also I would like to point out the US's reliance on foreign oil (especially Arab) which is much, much more important than steel as a strategic resource. What about the other stragetic resources, such as rubber - not much production of that in America, coal. Also if there was a war do you think that people would not be prepared to produce steel in America, surely the huge war profits that could be earned would attract someone to convert their factory.

The strategic value of a vital "war-time" industry only becomes "vital" when it is needed. Kind of like the arguement the proponents of having guns argue. When you need it, its there. In WW2 the steel industry would have been one of top priority for the UK facing most of Europe. The US policy makers tend to have worries on over-dependance on foreign anything. However, and I stress however, over 90% of all the raw materials used for metalurgical purposes in the domestic US metal industries came from either the US, Canada or Mexico. I really doubt the US has any fears of Canada or Mexico going hostile on them. Even if Canada and Mexico got all hostile, the US would have enough reserves to "take" the resources needed to continue.

Some brief facts.
Largest open pit copper mine in the world is located 50 miles from the Salt Lake Olympic site.
Canada and the US still export coal because they don't need it all.
Mexico provides enough rubber for both Canada and the US's needs. NAFTA is a good thing here. The EU is a good thing there. I doubt the UK fears many EU members are going to get hostile and deny them raw materials.
The Oil reliance is starting to shift. The US has had quite a decilne in Arab Oil imports since 1995. Most of the new Oil is from North or South America and Russia and Norway. I also know that they understand this aparent reliance on Arab Oil and therefore are trying to remedy the situation. OPEC does not control as much of the world market on Oil as they used to.

So to sum it all up. In my opinion, yes the steel industry is vital to US interests. And yes, it is not being done 100% (ie the other 10% of imports for metalurgical purposes) but that is where things are headed. Is the tariff wrong? Depends on your view. If you are from the Outside looking in, it will always be wrong. If you are on the Inside looking out it probably will be right.


knowltok2 sumed up the rest of what I was going to comment about. Especially the allusions to Berlin and the flip-floping on the Bananas vs Steel. Hmmm... Kind of like the Guns vs Butter we all got in Economics. Americans can be some of the most ruthless and the most compassionate people I know. I'm not saying the British are not compassionate, I know they are, I'm saying to watch blanket statements of giving aid as being foreign to Americans.

 

[andycapp]

Originally posted by Greadius
What American industry competes on the world market that recieves government subsidies? Farmers? Of course... every nation that creates a food surplus subsidizes farmers. Any others?

Greadius,

No, not every nation that produces "a food surplus subsidizes farmers". Australian agricultural producers are probably the most efficient in the world and do not receive government subsidy in the way that American and EU farmers do.

Efficient agricultural producers such as Australia are usually the meat in the sandwich when it comes to protectionist trade wars between the US and the EU - something both groups conveniently overlook when they start spouting their rhetoric about free trade.

 

[Greadius]

Originally posted by knowltok2
Given these clarifications, am I still trying to be revisionist? Let me know, because that is not my intent.

I meant that much more inoculously. I don't like the barons of big business back then being vilified now because they operated in such a different world by such different standards. In my opinion, its like villifying the founding fathers for not allowing women to vote. It was a mistake by todays standards, but its important to remember the economic & social conditions that the big business barons operated under were very different that expecting them to abide by todays standards is wrong.

Originally posted by andycapp
Australian agricultural producers are probably the most efficient in the world and do not receive government subsidy in the way that American and EU farmers do.

But they do recieve subsidies? That was my only point with that statement.