Steel tariffs working but China needs stronger enforcement

By Christian WhitonOpinionFOXBusiness

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On Monday, President Trump signed an executive order requiring that steel and iron used in federal contracts come from U.S. firms.  That makes a lot of sense: public works financed by American taxpayers should benefit American workers and companies whenever possible and not China.

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The move comes as the administration seeks to consolidate the restoration in American manufacturing that has occurred over the two and a half years since Trump took office.  The steel and aluminum industries are a case and point. 

After holding steady during the late 1990s, the number of U.S. employees working in metal manufacturing, including iron, steel, and aluminum plants, declined drastically from 608,000 in 2001, the year China was admitted to the World Trade Organization, to 368,000 the month that Trump was elected.  By last month, there had been a solid turnaround to 383,000 jobs in the sector.  Importantly, the previous negative trend has been stopped and reversed.  Steel companies are optimistic and expanding.  Unemployment in the sector is a scant 2.3 percent—lower than at any point in the previous administration. 

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This nascent turnaround is fundamentally important for our economy and the American middle class.  The average annual wage of an iron and steelworker is $58,000 and these jobs typically do not require a college degree and the associated lifetime of student debt.  Each job can support a family and leads to other economic activity in a community—a crucial tool in rebuilding the middle class outside of America’s elite coastal bubbles.

But there is more work to do.  In particular, the government should crack down further on China’s attempt to destroy the U.S. steel industry. 

Self-described free traders lament that tariffs, including those Trump imposed on steel and aluminum, raise prices for consumers and stop the transition away from economic activities in which America lacks a competitive advantage.  The problem with this line of thinking is that there is no free market in steel to preserve, and we must take action if we want a domestic steel industry.  Most major steel exporters subsidize steel or undertake other non-market activities to give their domestic steel manufacturers an advantage.  For example, the Indian government assists steel makers with 12.5% tariffs, minimum import prices, subsidies, and a high tax on iron exports to make that important input to steel manufacturing available at below-market prices.  The U.S. Trade Representative estimates that exemptions from duties, taxes, and fees afford Indian producers more than $7 billion in subsidies.

China is the worst offender.  Chinese steel firms, many of which are state-owned enterprises that benefit from essentially free capital and tax “rebate” handouts, have dumped their products at prices below cost in order to drive the steel industries in other countries out of business.  Freed by China’s communist government of the need to earn a profit, Chinese steel companies could often undercut nearly any domestic supplier.  That is one reason the Trump administration enacted 25% tariffs on Chinese steel last year. 

As the job figures show, this defensive measure of an industry and product that is crucial to our economy has begun to pay off.  But the Chinese are attempting to circumvent the tariffs, especially in the vitally important oil and gas sector, which they would love to make politically and economically dependent on Beijing.

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For example, in just three years, Chinese producers have taken over the market for the lower-end couplings used to connect pipes in oil and gas drilling.  Imports of these couplings have doubled during that time.  Now Chinese producers are expanding their reach from low-quality steel couplings to higher-end varieties.  One mechanism China uses to circumvent U.S. tariffs is to export steel pipes to South Korea, where they are finished into other goods like these.  South Korea faces a U.S. quota by tonnage but not the 25 percent tariff China faces. 

The Trump administration should close this loophole by adding penalties for any country that is facilitating China’s evasion of the law.  Last year, the administration imposed duties of more than 250 percent on certain steel exports from Vietnam after it determined they contained a significant portion of Chinese steel.  Let’s hope it takes this strong approach with other enablers of Beijing’s trade misdeeds in order to defend U.S. steel jobs and safeguard the supply chain of our vital oil and gas industry. 

Christian Whiton was a State Department senior advisor in the Trump and George W. Bush administrations.  He is a senior fellow at the Center for the National Interest and the author of “Smart Power; Between Diplomacy and War.”