A(nother) Case Study of Terrible U.S. Tariff Policy
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pI know you liked a href=https://thedispatch.com/newsletter/capitolism/the-bear-is-a-tribute-to-dynamism-and-what-blocks-it/ rel=noopener noreferrer target=_blanklast week’s column/a on emThe Bear/em, but we need to talk about tariffs. Again. Inbsp;swear, however, that there’s anbsp;good reason: The federal government is now considering one of the largest “trade remedy” (anti‐dumping and countervailing duty) cases in recent years—one requested by the United Steelworkers union and Ohio‐based steelmaker Cleveland Cliffs and targeting a href=https://www.akingump.com/en/insights/alerts/new-antidumping-and-countervailing-duty-petitions-on-certain-tin-mill-products-from-canada-china-germany-netherlands-south-korea-taiwan-turkey-and-the-united-kingdom rel=noopener noreferrer target=_blankalmost all imports/a (billions of dollars in total) of “tinplate” steel, which American companies use to make cans for food and other consumer staples. The emWall Street Journal/em deserves credit for a href=https://www.wsj.com/articles/bidens-next-dilemma-union-jobs-or-pricier-diced-tomatoes-53be693e?st=xjq48bpoylp4ztx rel=noopener noreferrer target=_blankcovering/a and a href=https://www.wsj.com/articles/bidens-next-dilemma-union-jobs-or-pricier-diced-tomatoes-53be693e?st=xjq48bpoylp4ztx rel=noopener noreferrer target=_blankopining on/a the case, which is currently pending before the relevant government agencies, but misses some important details and context—points that turn the investigation and any resulting import duties into not merely another case of American protectionism but also anbsp;real case study of the absurdity of U.S. tariff policy today./p
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pNew trade remedies would hurt steelworkers and American consumers./p
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pstrongThe U.S. Still Imposes anbsp;Lot of Tariffs/strong/p
pFor starters, the case underscores the emptiness of trendy claims that the U.S. is some sort of tariff‐free “neoliberal” paradise (or whatever). As new data from the World Trade Organization a href=https://twitter.com/scottlincicome/status/1676999690900865031?s=20show/a, in fact, the United States is—emby far/em—the world leader in the use of trade remedy protection, imposing by mid‐2022 almost 22 percent of the world’s anti‐dumping duty measures (506 total) …/p
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p… and anbsp;whopping 61.4 percent (178) of all global anti‐subsidy (countervailing duty) measures:/p
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pAccording to the a href=https://www.trade.gov/data-visualization/adcvd-proceedings rel=noopener noreferrer target=_blankCommerce Department/a, moreover, almost half of these duties (305) are on steel products like tinplate. In fact, we already have anti‐dumping duties on tinplate from Japan, and those have been in place for more than em20nbsp;years/em—a true testament to the persistence (and absurdity) of this kind of protectionism. And there’s more in the works: Another 44 trade remedy investigations are now underway, 16 of which are also on steel products (nine on tinplate and seven on other stuff):/p
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pIt’s also worth noting that, while average rates for “normal” U.S. tariffs are indeed relatively low, we still have (and had before Trump) these taxes on plenty of imports, especially food, clothing, and footwear. According to the latest a href=https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/US_E.pdf rel=noopener noreferrer target=_blankWTO tariff profile of the United States/a, in fact, we apply tariffs to about 70 percent of all agricultural imports and about half of all non‐agricultural imports. Most of these tariffs are low (below 5nbsp;percent), but anbsp;lot of them are much higher—especially for certain “politically sensitive” things like food, clothing, and footwear (a href=https://www.wto.org/english/res_e/statis_e/daily_update_e/tariff_profiles/US_E.pdf rel=noopener noreferrer target=_blankclick the link/a for more details)./p
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pThus, even leaving aside all the other U.S. protectionism—thea href=https://thedispatch.com/newsletter/capitolism/your-summer-cruise-just-got-cabotaged/ rel=noopener noreferrer target=_blank Jones Act/a, a href=https://thedispatch.com/newsletter/capitolism/bye-america/ rel=noopener noreferrer target=_blankBuy American/a, regulatory barriers (like on a href=https://www.cato.org/briefing-paper/formula-crisis rel=noopener noreferrer target=_blankbaby formula/a)—even U.S. emtariff policy/em isn’t the “free market fundamentalism” some would have you believe./p
pstrongTariffs Aren’t ‘Pro‐Worker’ (or Pro‐Manufacturing, Either)/strong/p
pThe tinplate case also reveals the silliness of describing American protectionism as “pro‐worker.” All American workers are also consumers, and research shows that they (we) pay the lion’s share of anbsp;tariff’s cost—whether in taxes paid to the Treasury or higher prices in the U.S. market. We’ve discussed this rather obvious conclusion several times now, but it was recently confirmed again in anbsp;a href=https://www.usitc.gov/publications/332/pub5405.pdf rel=noopener noreferrer target=_blankMarch 2023 U.S. International Trade Commission (ITC) report/a on the Trump‐era tariffs (steel/aluminum and China), as well as anbsp;new a href=https://t.co/IMe9Ep8ffg rel=noopener noreferrer target=_blankacademic study/a on the China tariffs alone. In both cases, Americans—not foreign producers or governments—paid almost all the tariffs’ costs./p
pIn the case of tinplate, some portion of new tariffs would inevitably be passed on to consumers via higher prices for canned goods—food, aerosol sprays, etc. According to one a href=https://consumerbrandsassociation.org/wp-content/uploads/2023/05/Tin-Mill-AD-Impact-on-Canned-Food-and-Consumers-Final.pdf rel=noopener noreferrer target=_blankrecent study/a, about 34 percent of the cost of anbsp;typical can of corn is the can itself, and tinplate accounts for most of the can’s cost. Thus, tariffs at the high rates requested by petitioners in the new tinplate investigations could increase the price of anbsp;can of food by 36 to 58 cents per can, or 19 to 30 percent./p
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pThis is, of course, anbsp;speculative exercise that depends on anbsp;lot of factors, including final tariff rates and domestic demand, but ample research and recent experience show that tariff‐related price hikes are all but certain./p
pConsumer harms, however, aren’t limited to end users because most American embusinesses/em—and their workers—are consumers too. When tariffs raise their input costs, these companies typically respond by cutting other costs (jobs, investments, etc.) and/or by raising their prices. Sometimes, they a href=https://twitter.com/scottlincicome/status/1681395181466132505?s=20 rel=noopener noreferrer target=_blankopenly admit it/a. Higher prices, in turn, can reduce the companies’ output (because consumers will buy less from them at the new, higher price). Thus, for example, that new U.S. ITC study found that each year between 2018 and 2021, Trump’s steel and aluminum tariffs caused approximately $3.4 billion in output losses for downstream U.S. manufacturers—$13.6 billion total over the period. Automotive, machinery, and cutlery companies were especially harmed. Even factoring in tariff‐related gains for protected U.S. metals producers, we still ended up around $5 billion poorer on net through 2021. That damage continues today./p
pThe same dynamics would be in play for new tinplate tariffs, threatening downstream U.S. manufacturers emand/em their workers—workers who, by the way, outnumber upstream tinplate workers by an almost 45‐to‑1 margin (approximately 147,000 to 3,300). The consumer companies even employ more than seven times as many emunionized/em workers—about 23,350—as do tinplate producers (3,000), if you’re into that sort of thing./p
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pGiven these facts, it’s no surprise that anbsp;new Trade Partnership study a href=https://consumerbrandsassociation.org/wp-content/uploads/2023/04/Economic-Effects-of-Tinplate-Duties-FINAL.pdf rel=noopener noreferrer target=_blankestimates/a that high tariffs on tinplate and the resulting higher U.S. prices would hurt production at American tin can and processed food manufacturers, via reduced domestic demand and/or new competition from imports that aren’t hamstrung by similar tariffs. This lower output would, they estimate, also threaten the jobs of almost 40,000 U.S. workers, thousands of whom are themselves unionized. By contrast, the study estimates that the tariffs might create just anbsp;handful (66!) of upstream jobs at U.S. tinplate makers—in large part because these companies have expressly stated they have little interest in expanding domestic production capacity, and because certain types of tinplate are available only abroad (hence, all the imports). To put anbsp;human face on all of this number crunching, Virginia Sens. Mark Warner and Tim Kaine just a href=https://twitter.com/scottlincicome/status/1679950904768831488?s=20 rel=noopener noreferrer target=_blankwrote/a to Commerce Secretary Gina Raimondo warning that new tariffs could not only increase food prices but threaten anbsp;can facility in Roanoke, Virginia, which employs 130 of their constituents./p
pAs always, protectionism isn’t “pro‐worker”; it’s pro‐emsome/em workers—at most other workers’ expense./p
pstrongTariffs Beget More Tariffs—and Requests for Special Exceptions/strong/p
pThe Warner/Kaine letter and the tinplate cases more broadly also show how tariffs on manufacturing inputs not only harm other U.S. manufacturers but also lead to demands for even more protectionism or special exceptions from the pain. Here, U.S. “national security” (a href=https://www.cato.org/policy-analysis/protectionism-or-national-security-use-abuse-section-232 rel=noopener noreferrer target=_blankSection 232/a) tariffs on the stuff used to make tinplate (hot‐rolled steel and “blackplate”) increased tinplate manufacturers’ costs and caused serious harm to the industry—harm that’s now being blamed on imports under investigation. The aforementioned ITC report, in fact, summarizes direct testimony from one tinplate company—Ohio Coatings—detailing the damage:/p
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pThe imposition of [Section 232] trade remedies to restrict the import of tin mill blackplate—when domestic tin mill blackplate is undeniably in short supply—… has had the unintended consequence of actually reducing the American steel industry’s tin plate market share. During 2017, the year prior to imposition of Section 232 trade protection, the three domestic tinplate producers (U. S. Steel, ArcelorMittal, USA and OCC) supplied 60% of the America’s tinplate needs. The remaining 40% of the domestic tinplate market was split between several foreign producers. In 2022, U. S. Steel, Cleveland Cliffs and OCC will account for less than 40% of the American tin plate market. That precipitous loss of domestic market share is attributable in significant measure to the impact of the misapplication of Section 232 tariffs and quotas to imported blackplate, and the consequent reduction in OCC’s ability to fully participate in domestic tinplate production./p
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pInstead of lobbying to repeal emthose/em tariffs, tinplate‐maker Cleveland Cliffs and the steelworkers union just want emmore tariffs/em—“a href=https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-steel-and-aluminum-tariffs-are-cascading-out-control rel=noopener noreferrer target=_blankcascading protectionism/a” that we’ve seen repeatedly (for a href=https://www.cnbc.com/2018/08/22/one-us-company-feeling-the-heat-from-trumps-tariffs-is-hoping-for-relief-from-more-tariffs.html rel=noopener noreferrer target=_blankkegs/a and a href=https://www.prnewswire.com/news-releases/nails-coalition-files-brief-supporting-us-government-in-tariff-extension-301457827.html rel=noopener noreferrer target=_blanknails/a and a href=https://www.cato.org/blog/commerce-continues-gas-duties rel=noopener noreferrer target=_blankoil pipe/a, for example) as anbsp;result of Trump’s (now Biden’s) metals tariffs. Other tinplate producers, meanwhile, have lined up to lobby the Commerce Department for exclusions from the Section 232 tariffs—a href=https://consumerbrandsassociation.org/wp-content/uploads/2023/05/Tin-Mill-AD-Impact-on-Canned-Food-and-Consumers-Final.pdf rel=noopener noreferrer target=_blank3,364 times/a, in fact. That process, as you may recall, was a href=https://www.cato.org/policy-analysis/protectionism-or-national-security-use-abuse-section-232#cutting-procedural-corners rel=noopener noreferrer target=_blankfound/a by the Commerce Department’s own inspector general to be “neither transparent nor objective” and giving off “the appearance of improper influence in decision‐making for tariff exclusion requests.” (Shocking, Inbsp;know.)/p
pNew duties on tinplate could cause the cascade to continue, as U.S. producers of cans and canned goods struggle to compete with overseas companies who aren’t hamstrung by high taxes on their main input. In fact, we’ve already seen some of this happening with the 232s, as U.S. a href=https://consumerbrandsassociation.org/wp-content/uploads/2023/05/Tin-Mill-AD-Impact-on-Canned-Food-and-Consumers-Final.pdf rel=noopener noreferrer target=_blankproducers report/a higher tin can imports and imports of canned foods—including from China—since metals tariffs started biting in 2018./p
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pstrongTariffs Don’t Revive Industry—And Protected Companies Often Don’t Even Try/strong/p
pAs the long and illustrious history of U.S. steel tariffs demonstrates, protectionism a href=https://www.cato.org/policy-analysis/doomed-repeat-it-long-history-americas-protectionist-failures#the-failed-objectives-of-protectionism-during-the-gatt-erararely produces/a anbsp;thriving domestic industry because protected companies have little incentive to invest in things (e.g., cost‐saving technologies) that would actually improve their productivity and long‐term competitiveness. In a href=https://www.cato.org/blog/industrial-policy-wont-solve-jones-acts-many-problemscase after case/a, companies enjoying tariff‐fueled price increases don’t plow their windfall profits back into the company and instead choose to a href=https://www.mercatus.org/research/working-papers/executive-incentives-import-restrictions-and-competitionpay out/a managers, debtors, and shareholders – emand/em to lobby for more protection (or subsidies)./p
pAccording to the emJournal/em, the petitioners in the current tinplate investigations, Cleveland Cliffs and the United Steelworkers Union, emsay/em that tariffs will improve profitability and let companies expand capacity. But the company’s own words and actions show they’ll do nothing of the sort. In fact, they emdoubled/em tinplate prices despite steady costs in late 2021 and a href=https://seekingalpha.com/article/4461574-cleveland-cliffs-inc-clf-ceo-lourenco-goncalves-on-q3-2021-results-earnings-call-transcriptbragged to investors/a about a “meaningful, bigger [earnings] contribution from tinplate.” Then anbsp;year later, they a href=https://d1io3yog0oux5.cloudfront.net/_cc1ea795e78cf6cc49e4cd9ce47f30da/clevelandcliffs/db/1111/11408/file/Cleveland-Cliffs+Inc.+Third+Quarter+2022+Earnings+Conference+Call+Transcript.pdfexplained/a that they’d used these profits not to expand capacity but to just pay off their 2020 acquisition of another tinplate producer./p
pAs U.S. Steel, anbsp;tinplate producer that doesn’t support the new tariffs, told the emJournal/em, and as anbsp;separate a href=https://www.wsj.com/articles/tin-foil-hats-for-tin-mill-tariffs-usw-retaliation-allies-ohio-brown-eea2666c?page=1editorial/a reinforced, nobody is interested in expanding domestic tinplate capacity because of weak U.S. demand for the product and the possibility of earning fatter profits on other, higher‐margin steel products. As anbsp;result, “domestic tin‐mill production capacity is expected to be about 45% lower by the end of this year than in 2017,” and—far from causing those capacity closures—imports have helped fill the gap that such closures left in the U.S. market. New tariffs are thus quite plainly just anbsp;way for Cleveland Cliffs to goose tinplate prices and profits even more—at American consumers’ great expense./p
pSame as it ever was./p
pstrongU.S. Tariff Policy Isn’t (Just) China Policy/strong/p
pFinally, the tinplate case is yet another reminder that much of American protectionism has little to do with China, despite what its advocates would have you believe. Commerce Department data on trade remedy investigations and duties demonstrate this point, with China getting anbsp;lot of attention but other countries collectively getting even more:/p
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pFor tinplate, in fact, China has been anbsp;relatively minor player in the U.S. market and continues to be so this year:/p
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pYet the United Steelworkers’ a href=https://m.usw.org/news/media-center/releases/2023/usw-welcomes-itcs-preliminary-determination-on-tin-mill-products-from-eight-countriespress release/a cheering the continuation of the investigation coincidentally mentions only China by name—emthree times/em, in fact, in anbsp;seven‐sentence statement. Such blame shifting is par for the protectionist course: Section 232, for example, was a href=https://twitter.com/SenSherrodBrown/status/1014234967386226688?s=20repeatedly/a a href=https://www.americanmanufacturing.org/section-232-is-working/touted/a as countering China, even though—thanks in large part to all those trade remedy duties—the country a href=https://twitter.com/scottlincicome/status/855409902117892096?s=20wasn’t even/a anbsp;top 10 supplier of steel to the United States before the tariffs were imposed. Much like with any tinplate tariffs, the 232 tariffs hurt mainly U.S. allies in Canada, Europe, and Asia (Japan and South Korea) instead./p
pOther U.S. tariffs are similarly misguided. For example:/p
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blockquote class=twitter-tweetp lang=en dir=ltrYour Dumb US Trade Policy Fact of the Day™, via a href=https://twitter.com/EBGresser?ref_src=twsrc%5Etfw@EBGresser/a: the average rate of US tariffs paid in 2022 was higher for Bangladesh amp;nbsp;Sri Lanka than for China (bc we tax the crud out of cheap clothes amp;nbsp;shoes): a href=https://t.co/4WhA8eAyFvhttps://t.co/4WhA8eAyFv/a a href=https://t.co/9XaDgzNtMcpic.twitter.com/9XaDgzNtMc/a/p— Scott Lincicome (@scottlincicome) a href=https://twitter.com/scottlincicome/status/1679198383599149056?ref_src=twsrc%5EtfwJuly 12, 2023/a/blockquote
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pAs frustrating as this all is, it’s also anbsp;good reminder that the U.S. government could pursue plenty of meaningful tariff reforms without ever touching the China issue. (Spoiler: It won’t.)/p
pstrongWill Any of This Matter? (Maybe Not.)/strong/p
pWhile Inbsp;applaud the emJournal/em’s attention to the tinplate case, they misfire by framing the ultimate decision as one in President Biden’s hands. That’s because, as I’ve a href=https://thedispatch.com/newsletter/capitolism/dumping-doesnt-mean-what-you-think/explained/a repeatedly, U.S. trade remedies law puts these cases on procedural autopilot and makes new duties extremely likely. Sure, there’s some methodological wiggle room here and there (e.g., on document production or final duty rates), but—as we saw recently a href=https://www.cato.org/commentary/cloud-still-hangs-over-nevada-solar-industry-despite-temporary-tariff-reliefwith solar panels/a—simply terminating or even pausing these cases, even really dumb or damaging ones, takes extraordinary (and legally dubious) action from the president./p
pIn fact, a href=https://www.cato.org/blog/new-us-tariffs-are-contributing-shipping-crisis-theres-little-we-can-do-about-itdecades of congressional meddling and regulatory interpretation/a have ensured that much of what I’ve mentioned above can’t factor into the final agency decision to apply duties on these imports. The Commerce Department’s dumping calculations, for example, generate “dumping” in almost all cases, regardless of whether foreign producers are pricing below cost or have any predatory intent. The ITC’s “injury” determinations are anbsp;bit more intellectually honest, but even there the law generates an affirmative determination (and thus duties) where imports are increasing and simply ema/em cause, not emthe principal/em cause, of injury to the domestic industry. The ITC is also barred by law from considering consumer harms, emergency situations, or the broader public interest. As an independent agency, moreover, the commission isn’t under the president’s thumb./p
pGiven these realities, betting against new trade remedies duties is anbsp;surefire way to go broke. It emcan/em happen, but it’s rare, as the U.S. steel industry knows all too well. The facts here—increasing U.S. prices, insufficient domestic capacity, tinplate producers’ own statements and actions, pandemic‐related disruptions, etc.—are so egregious that they might very well generate anbsp;negative ITC determination in anbsp;few months. If they don’t, however, the results will be anbsp;sad but unsurprising addition to the annals of American protectionism./p
pstrongChart of the Week/strong/p
pa href=https://t.co/vLGgzgnU94Wages in Europe stagnating versus the U.S./a/p
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pa href=https://t.co/vM7LI3by7fThe Sunbelt continues to surge:/a/p
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