Leibowitz on trade: Have consumers gotten lost in the mayhem?

Coping with these challenges was the subject of a few sessions at the conference. Once the challenges are identified, however, people get to the subject of how to address the challenges. When the discussion gets to that point, you can’t help but hear axes grinding. Suggestions for addressing the problems tend to focus on the narrow interest of the person making the suggestion.

The trouble with Trump’s 10% tariff on everything

As I reported last week, former President Trump has suggested making international supply chains less relevant by imposing a 10% tariff on imports into the United States of—everything. That was a major topic at last week’s conference. Who would be helped by this and who would be hurt were also mentioned frequently. Steel and aluminum imports, including semi-finished steel and primary aluminum, are subject to 25% and 10% tariffs already (Section 232). But many of these imports are exempt from taxation because major sources are subject to quotas rather than tariffs. The results are predictable: Either the quotas are captured by major producers in the US (the destination of most slab imports are steel re-rollers), or exclusions from the tariffs. (More than 500,000 exclusion requests have been submitted since 2018, showing the reliance on international supply chains by steel using manufacturers.)

Tariffs on everything will help a few industrial consumers who compete head-to-head with imports. But all of us will have to pay more, not only those who buy imports but those who buy domestically as well. US auto producers, whether they are the Detroit Three or foreign-owned (Toyota, Nissan, Mitsubishi, Subaru, Hyundai, KIA, Volkswagen, BMW, and others), use US-produced steel almost entirely. But they like imports in the market, especially around contract time when they set prices with domestic steel producers. The 10% tariff will reduce the leverage of the auto producers in those negotiations.

That result is duplicated throughout the economy. Steel users (such as American producers of metal cans, construction contractors, and thousands of others), aluminum users (brewers, automakers, construction contractors, airplane makers, equipment makers), sugar users (candy and confectionary, food processors, chemical companies), chemical manufacturers (pharma companies, fertilizer makers for agriculture) are all in sectors downstream from major imports, and generally employ many times the workers as their upstream suppliers.

Consumers need passion to sway Congress

Yet for most of these sectors, there is little agitation. The can manufacturers are an exception. They have mounted a major effort to defeat antidumping and countervailing duties that Cleveland-Cliffs wants on tin mill steel products. The downstream consumers have strong arguments. They employ many times the workers that make “tin mill” steel products. Only one company makes tin mill products in the US, and its capacity to make tin mill products is a fraction of the demand in the US. Imports are essential. Imposing antidumping and countervailing duties could send thousands of jobs offshore.

Cliffs has a good argument too, if somewhat cynical: The law has been written by Congress over many years specifically to discount the power of these arguments from downstream consumers. Consumers prevail sometimes, but very rarely. In antidumping and countervailing duty cases, consumers really don’t count.

The International Trade Commission (ITC) will vote on whether there is “material injury” to the domestic industry producing tin mill products on Feb. 6. If the Commission finds injury, the Department of Commerce will issue antidumping and countervailing duty orders covering tin mill products. And if that happens, it will be because consumer arguments are not fully considered under the law, which barely considers consumer welfare. Other countries (and the EU) give much greater consideration to downstream harm than does the United States.

The fix for this is to reform the antidumping and countervailing duty laws. To accomplish that, advocates will face a dug-in steel industry and several others (softwood lumber, garlic, antifriction bearings), that oppose balancing consumer interests against the interests of the producers that file these cases.

Consumers fail to score on these issues largely because they have less passion than those industries that use the trade remedy laws to protect themselves. Passion is a key ingredient to success in the halls of Congress. That’s why reform, even though consumers have good arguments to make, is so difficult.