Leibowitz on Trade: What Does It Take to Win A War?

For people and businesses, we look for “complications.” And pandemics can kill businesses just like people that are susceptible because of underlying conditions.

Last week, Allegheny Technologies Inc. (ATI) finally announced the closure of one of its major plants in Midland, Pa., near the Ohio border. The company blamed the steel tariffs, which cut off their supply chain (stainless slabs, largely from Indonesia). But was there an underlying condition?

ATI had been trying to get an exclusion for semifinished stainless steel slabs for quite some time. The company published an op-ed in The Wall Street Journal arguing that, while they supported the Trump tariffs, they could not live with them and needed an exclusion. The underlying condition could have been imports of finished stainless products, global titanium competition, high wages, taxes, or maybe some combination of the above. But the company believes that the Midland Plant principally fell victim to the tariffs on their raw material, the Indonesian slabs.

ATI professed to support the tariffs, as long as they didn’t apply to their raw materials. But every U.S. customer of foreign steel or aluminum is in a similar situation. Imports are almost never a luxury, but are often a necessity.

We may have come to expect steel product exclusions, or aluminum product exclusions, or China product exclusions, to be the “new normal.” If a company has to rely on the federal government’s approval to keep your supply chain from closing, is that “normal?” Should it be? If not, what will cause your situation to revert to normal? Many are waiting for the answers to these questions.

The product exclusion system is really two systems—the steel and aluminum exclusion regime and the China regime. The differences? For one thing, the Department of Commerce handles steel and aluminum, while China is administered by USTR. The two agencies have different criteria and different forms. The applications are reviewed by different people. In the age of the virus, coordination of responses suffers. If a company needs an exclusion, slow response times are not much different from a disapproval. If this is normal, it needs to change.

In the meantime, 70 workers in Midland, Pa., will lose their jobs in June.

While all this has been happening, some companies and trade associations have urged the administration to call time out on the trade war. Tariffs are making U.S. companies that need steel and aluminum products, or parts from China, less able to compete. At the same time, their ability to buy from new suppliers in the United States is diminished because demand has plummeted.

The need for imported components affects the health industry as much as any other. Our medical supply chain is global. The chain includes people as well as products. Our doctors and nurses fighting the virus and other diseases around the country come from all over the world, not just from U.S. colleges, universities and medical schools. And, of course, our medical supplies come from all over the world too. Not just masks and ventilators, but protective clothing, bandages, pharmaceuticals and many other products that are needed in the front lines of this war against the virus.

When a company, or a person, is fighting for survival, the time is not right for pinching pennies, or for limiting options. I know from experience, having participated in struggles which are that kind of life and death for companies. You must fight the war first, if it’s really life and death, and you add up the cost when the war is over. You do what you have to do to win.

Though there’s been no final announcement, it now appears the administration will not agree to suspend tariff collections for the time being. While products that are vital to the battle against the virus are not always subject to Section 232 or 301 duties, they sometimes are. Many of these products are ordinary parts (fittings, flanges, valves and the like) in machines like ventilators. A ventilator has many parts; if you lack one of them, you don’t produce a ventilator. Stories abound about supply bottlenecks. Simple parts may not be available. We need to make sure that more ventilators are produced. Taxing imports of parts is not helpful in this war.

American companies are stepping up to make products they’ve never made before. That will take time to ramp up and, as the old saying goes, “mistakes will be made.” While we are learning by doing, can we get at least some of the ventilators we need?

Trade associations like those representing the users of trade remedy laws (such as CSUSTL, a name I’ve been familiar with for about 40 years) are now arguing against suspension of tariffs because the government will not collect the money when the crisis is over. But that does not really help us win the war we need to win now. It sounds a little bit like “I’m more important than the rest of you.”

On top of that, a number of companies, and state governors, are urging the federal government to restrict exports of vital products so that more are available in the U.S. Canada is the most immediately in danger from this prospect. The Prime Minister of Canada has complained that export restrictions from the United States will be a disaster for Canada. Perhaps we can work things out. I certainly hope so.

And Canada is not alone. Seventy percent of ICU ventilators in the world are made by four companies, located in Germany, the United States, Switzerland and China. Any country that needs ventilators and finds itself short will, if present trends continue, need to build its own industry because the major countries that make them now (Germany, Sweden, the U.S., Switzerland and China) will not export them. That is not the best way to win the current war fast.

Economists suggest that the best way to address a shortage of supply is to put more products into the market. Export restrictions will discourage companies from making the investment in ventilators and other needed products because their ability to market them will be restricted.

It makes sense to fight a war for survival in the most efficient way possible—to make it short and spare as many lives as we can. We entered this war short of supplies. While Washington will no doubt find many flaws that made the problem worse and last longer, the best time to deal with those issues is after we’ve won.

For now, let’s get as many ventilators, masks and other gear to the front-line soldiers in this war. Can we put first things first?

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