Friday, 2 March 2018

Learn from history - Steel tariffs don't help

The US has been there before many times. And yet they do it again and again. Granted that logic and thoughtful action is not a feature of the current US administration. But still, you would have thought they would have read up what happened when they tried it last time.

I am referring to the announcement today that the US plans to impose a tariff of 25% on steel imports.

George W Bush tried the same tactics in 2002, with an eye on the same political prize - voters in Pennsylvania and West Virginia.  He imposed 8-30% tariffs on imported steel . At that time the target was European steel. Europe promptly took the US to the WTO and won sanctions of  some $2 billion. More tellingly, the politically astute European Union threatened retaliatory tariffs on oranges (goodbye Florida votes) and cars (ta ta Michigan votes).  Meanwhile steel prices in the US surged, screwing industries that buy steel. A later study concluded that 200,000 jobs were lost in the US as a result.  Bush retreated and called off the tariffs in 2003.

His father George HW Bush , and his predecessor Ronald Reagan tried various forms of it too. Reagan famously tried quotas on cars (at that time the target was Japan). The end result of that was that car prices went up by $1000 between 1982 and 1984 and the auto industry actually lost 60,000 jobs as a result of the quotas.

Obama indulged in steel tariffs too. His target was China. But that administration did it selectively - huge tariffs, selectively on products and against companies from China that were dumping.

It is not clear what the current administration is trying to achieve. Presumably their target is China , the current bogeyman and indisputably the cause of depressed world steel prices because of overcapacity. But China exports not much steel to the US possibly as a result of the Obama era actions. It is the 11th largest exporter to the US occupying a small portion of US imports - even India is above it in the rankings. The biggest exporter of steel to the US is Canada, followed by Brazil. Is the US trying to screw Canada ?

Why pick a trade war with Canada of all the countries. The US has a  deficit of $ 12 bn in goods and a surplus of $24 bn in services on a $ 700 bn two way trade. Overall the US has a surplus with Canada. And you want to provoke a war with them ? Yes, the current administration has launched a war on NAFTA, but even by that perverted logic, the target must be Mexico and not Canada.  Canadians are not fools . Selected tariffs from Canada  on Vehicles (bye Michigan) and Agricultural Produce ( adieu Ohio) and we are back to reliving the George Bush experience.

Albert Einstein is famously quoted to have said " The definition of insanity is doing the same thing over and over again, but expecting different results.” But to avoid that, you have to read history to determine what has been done before. Well, in the current administration, reading history is too much to ask. They would make a "yuuge" improvement if they could just begin with reading !


9 comments:

Sriram Khé said...

The famously free-market, anti-regulation do not pick winners and losers, GOP has as its Dear Leader a protectionist who is ready to slap tariffs. 63 million votes for this guy? I suppose god really wanted him to defend the faith, as Billy Graham said. To think that god is so weak that he needed this fella to defend him!!!

Ryan and McConnell and McCarthy and all those guys (yep, all white male GOP!) who chanted "freedom" and "free market" sit quiet as a mouse.

At this point, I don't know who the joke is on ... on the GOP? On America? On the world? On reason and enlightenment? God only knows doesn't work because god depends on the tariff master to defend him!!!

And all you can recommend is "if they could just begin with reading"? Have you been on another planet? This president reading books? Muahahahaha!!! ;)

Sriram Khé said...

Oh, of course, check this out ... my blog-post from March 11, 2016 ...

https://sriramkhe.blogspot.com/2016/03/cant-anybody-here-play-this-game.html

and,yes, read the comments there ;)

Sriram Khé said...

Oh, I just read this at the Economist website:
http://econ.st/2HZamva

on how things might turn out as a result of these tariffs ... I hope the readers will check out the Economist piece also ...

Ramesh said...

@Sriram - Recent history says protectionism has been tried more by Republican Presidents than Democratic ones - Reagan, Bush Sr, Bush Jr and now Trump. Clinton and Obama have tried it in a more nuanced way. When Reagan tried it, the cheer leaders were the Democrats. Every one of them has failed. The Republican philosophy of open trade conflicts straight against winning votes in the Rust belt. Democratic instinct is to impose tariffs, but their votes are in free trade championing coastal cities. Contradictions galore.

Anne in Salem said...

I haven't heard a single positive comment about the tariffs - not from union leaders, business leaders, academics, politicians. Curious decision. Must have been made in a vacuum.

Sriram Khé said...

Hey, Ramesh, this will make you happier ;)

"In a tweet on Saturday, the president said: "If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US."

http://www.bbc.com/news/world-us-canada-43270388

Big, beautiful, and the best tax you have ever seen, says the leader of the anti-tax party ;)

Ramesh said...

@Anne - Yes, its quite a dumb move. Done on the spur of the moment, without serious thought, something that characterises this administration

@Sriram - He has no clue what will hit him when these measures take their effect.

gils said...

"yuuge" mistake...rofl :D:D:D latest news is..trumpy wants to make presidency his permanent residency ala Xi. the statement god bless usa could very well be replaced with god save that country!!

Ramesh said...

@Gils - :) He is in dreamland. They are going to get a shellacking in November.

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