21.2.18

IN TRUMPLAND, THERE IS NO BEER.

That's not a reference to Our President's tee-totaling habits.  Rather, that's one of the ways that protecting domestic primary metals producers will manifest itself.
You could pay more for a six pack of beer or a can of green beans under tariffs that President Donald Trump is considering for aluminum and other metal.

The U.S. Commerce Department has recommended the tariffs on all steel and aluminum imports, or higher tariffs — up to 53% — on imports from specific countries.

The measures are aimed at bolstering the U.S. aluminum and steel industries, which have been hit hard by imports, especially from China.
Apparently, to keep Joe Sixpack employed at the melt shop or mill, Joe Sixpack will have to pay more for that sixpack.
The Steel Manufacturers Association is urging U.S. President Donald Trump to make a speedy decision on the course of action he’ll take relative to the Commerce Department’s Section 232 investigation.

"Even as we speak, the U.S. steel industry is still under assault from dumping, subsidies, state ownership, transshipments, circumvention, counterfeiting and cheating. It is time for us to seriously address these issues," said SMA president Philip Bell.
Last week, I attended a gathering of the Midwest Steelmakers: lots of mill food and a chance to stay current with economic conditions in the industry.  Domestic steel producers have plenty of orders, and yet those subsidized, state-owned mills overseas pose a threat.

You can hope to close the borders and hope for the best, or perhaps you can rediscover your comparative advantage.
About 20% of Europe’s steelmaking capacity is redundant, and companies should look to close mills while re-orienting themselves toward greater production of higher-end steel, voestalpine AG chief executive Wolfgang Eder tells The (London) Financial Times.

"As long as many plants in Europe produce the same stuff as non-European competitors can produce on a much lower cost base, we should not be surprised that the European steel industry is suffering," Eder said.
That's recognition of a point the speaker made at the gathering.  Currently, mills in the United States are pouring about a hundred million tons of steel in a year, while mills in China are pouring about 120 million tons.  But there's a lot of idle capacity -- the equivalent of three United States' worth of integrated and minimills -- in China.

Don "Cafe Hayek" Boudreaux did not attend the dinner, although he found the same points being made in the press.  He's not impressed.
More resources cannot move or be moved to here without resources moving or being moved from there.  And so if there are too many resources here, there are necessarily too few resources there.

Yet when grasping, guile-filled, greedy protectionists use allegations of global “excess capacity” or “overproduction” to plead for government restrictions on their fellow citizens’ freedom to spend money as these citizens choose – pleas proffered under the pretense of using government to correct market distortions – we never, ever hear complaints of the necessarily corresponding global undercapacity and global underproduction.  And governments never propose to act in ways to correct for, or adjust to, the corresponding under-capacities.
This asymmetry of complaints and action screams loudly.  It screams that the real motive of producers who gripe about alleged global “overcapacity” is simply to escape the need to compete for consumer patronage.  The producers’ motives are nothing more grand or noble than to pick the pockets of others.  And governments’ motives are nothing more noble than to assist in this thievery.
It's particularly delicious that last Tuesday's speaker represented Nucor Steel.  That's right, dear reader, the same Nucor Steel that once upon a time stayed out of the trade association, and the trade cases, under the impression that being able to make a better grade of steel out of recycled scrap: now a member of the rent-seeking class.  Something else that never changes?  Where government activity generates rents, there are opportunities for government officials to make career moves.
In a statement, the [Steel Manufacturers Association] said Jean Carroll Kemp will join as senior vice president of government affairs and trade policy.

"Jean’s experience and character make her uniquely qualified for this role at the SMA. She is a trade policy expert adept at creating solutions to sensitive and complex global challenges facing our industry. She is well respected among domestic and international steel industry stakeholders,” said Philip K. Bell, association president.

Kemp previously served in the Office of the U.S. Trade Representative as deputy assistant U.S. Trade Representative for industrial competitiveness. During her 14 years there, she also served as director of industrial metals, materials and energy and as director of steel trade policy.

Prior to her time at the Trade Representative's office, Kemp spent 16 years at the U.S. Department of Commerce.
It used to be that Nucor, in the spirit of Andrew Carnegie, would respond to imports by producing a better product and selling it at a lower price.  Perhaps it is still time to short China.  That's still notionally a socialist economy, particularly where the commanding heights are concerned.
China, the world’s top steel producer, will allow one ton of new capacity to be built for a minimum of 1.25 tonnes of old capacity closed in environmentally sensitive regions, effective this year, the ministry said in a statement.

The statement, long-awaited by market players, offered clearer details on closing capacities to build new plants, based on the size of blast furnace, converters and other facilities to be shut down.

The strict standard on capacities swaps has eased market worries that China will not loosen its restrictions on building new projects, a manager with a trading firm in Hangzhou said, declining to be named as he is not authorized to speak to media.
Why would anybody want to build more steel capacity in China, when three United States's worth of capacity are idle?
The new rules are a sign China will continue to deepen its efforts to push supply-side reform and reduce overcapacity in the sector. China is aiming to cut steel capacity by 100 million to 150 million tonnes over the 2016-2020 period, the country’s State Council said in early 2016 as part of a five-year plan.

The new guidelines include clearer details on closing capacities to build new plants, based on the size of blast furnace, converters and other facilities to be shut down.
Where is China's Billy Joel, and what's the name of a steel center that rhymes with Allentown?

With the primary metals people focusing on China, perhaps it's the economic pain in whatever the Chinese analogues to the Mahoning and Monongahela Valleys that will shake out the idle capacity.  Not trade protection.
The Aluminum Association, an Arlington, Va., trade group that represents U.S. aluminum manufacturers, says imports have risen more than 50% over the past five years, largely from China.

“In our view, any final decision (on tariffs) should focus on Chinese overcapacity. We don’t think there should be a broad-based tariff against countries that are operating responsibly, in particular Canada,” said Matt Meenan, spokesman for The Aluminum Association.

“Ultimately, we favor a negotiated, enforceable government-to-government agreement with China on overcapacity,” Meenan said.

The beer makers, and many others, say the aluminum they use should be removed from the proposed tariffs and quotas.

"Aluminum used to make beer cans is not a national security threat," McGreevy said.

Wisconsin is one of the nation’s leading producers of canned vegetables. And, like the brewers, the vegetable canneries import a substantial amount of metal.
For "negotiated, enforceable government-to-government agreement," read cartel.

The Nucor Steel of a quarter century ago would have seen in that Chinese galvanized a business opportunity, recycling post-consumer cans into thin strip for a return to the galvanizing plant.
If steel jobs are not primarily being lost to foreign competitors, what is responsible for their sharp reduction? Progress – or at least progress in the way steel is made. Since the 1980s, super-efficient mini-mills that make steel largely from scrap metal have largely supplanted integrated steel mills that use raw materials. As a result of this exponential change and other technological advancements, the steel industry has driven up labor productivity dramatically. In the 1980s, when the industry directly employed over a half-million people, it took over 10 person-hours to produce a ton of steel, Now, it takes less than 2 person-hours to produce the same amount of steel.

An industry under threat? Hardly. While steel workers are fewer and farther between, many steel companies are doing quite well. Last year, Nucor Corporation reported its net earnings increased by 65 percent over 2016. Similarly, Steel Dynamics reported record steel shipments in 2017 with record operating income.

Although fewer people than ever earn a living in steel plants, far more workers than ever earn their living in industries that depend on steel. There are only at most 150,000 Americans earning a living full-time in the steel industry, but more than 6 million work in industries that depend on steel, industries likes autos and construction that would be hurt badly by steel tariffs.
Yes, and canning and brewing. I suppose we have to pay higher prices to support our right to buy only U.S. made aluminum and steel.
Foreign producers most certainly did not cut their prices, but domestic producers raised theirs. The result? A study concluded that higher steel prices cost the United States 200,000 jobs – more than 6 times as many as the steel industry claimed the tariffs saved. Many small machine-tool and metal stamping shops were decimated by steel costs that rose as much as 30 percent.

Similarly, when President Obama imposed special duties on tires imported from China in 2009, the measure increased costs in the auto industry by about $900,000 per job saved.

The problem with tariffs on steel or any other product is that your own people pay them. Imposing them is cutting off your own nose to spite someone else’s face. The bigger problem is that the people who actually pay the tariff, in the form of higher prices, include the very industries an economy depends on to thrive.

There is a reason that most of the legislators who met with Trump last week – Republican as well as Democratic – were worried by the prospect of a new steel tariff. They have seen this movie before, and they don’t like the way it ends.
Yes, and to the extent that we exchange U.S. raised food for Chinese Distressed Material steel, the protection of workers who produce steel in oxygen furnaces comes at the expense of workers who produce steel in bean fields.

The good news is, Republican Members of Congress are not necessarily on board with these tariffs.  "The argument is that parts producers of everything from automobiles to aircraft to wiring in homes and office buildings would pay a higher price for metal if they can’t procure material from foreign sources that could cost less. By putting tariffs on imports, it effectively raises the price of imports so that domestic steel and aluminum producers aren’t being undercut." Make a better product, sell it at a lower price.  Moreover, as Professor Mankiw argues, if it's the political economy of trade policy that matters, not the mundane efficiency of two man-hours per ton, there are better ways to cushion the blows of creative destruction.  "To be sure, expanding trade hurts some people in the short run, especially those in import-competing sectors who have to find new jobs. That fact may call for a robust safety net and effective retraining. But it does not undermine the conclusion that free trade raises average living standards."  The column, in full, is a primer on the principles of specialization and trade: points familiar to regular readers.

Protecting the primary metals producers, however, comes at the expense of a lot of Joe Sixpacks in metal-using industries.
[For each] steel worker that may be helped by the import tax, there are over 38 workers in steel-using sectors that may be harmed by it. Further, the vast majority of steel-consuming manufacturers are small businesses that don't command the ability to pass higher prices on to their consumers.
That article takes too dim a view of the genuine improvements in steel productive efficiency (and environmental consequences) over the past forty to fifty years.

And yet, tariffs on primary metals, whether sold as for national security or not, will mean a lot of beer to be cried into in the downstream manufacturing and construction sectors.

2 comments:

Dave Tufte said...

I would love to hear what constitutes "mill food" in our low-fat, gluten-free, lactose-intolerant age

Stephen Karlson said...

Open bar sponsored by vendors, including Rockwell Automation. Platters of fried perch, herbed broasted chicken, roast beef, roast potatoes, green beans, a bowl of ice cream after. One of the Association staffers had been at an event the previous night in Pittsburgh, where they had the usual rubber chicken. Midwest did it way better.