Trump Trade Doctrine: Protecting Big Steel at Americans' Expense

Mr. Trump would like us to believe that so-called "unfair" trade is destroying U.S. manufacturing. His "prime" example is big steel, who, despite high retaliatory tariffs, remains globally uncompetitive.

In an August 20th Op-Ed for the Charlotte Observer, a senior policy advisor for the Trump camp, former CEO of Charlotte-based Nucor Steel, Dan DiMicco, attempted to sell the Trump Trade Doctrine to North Carolina voters:

The Trump Trade Doctrine is sound and necessary in today’s world where poorly negotiated trade deals and trade cheating have become the norm: Enter into no trade deal unless it increases our GDP growth rate, decreases our trade deficit, and strengthens our manufacturing base.

Trump’s policy on cheating is equally clear. Any country that continues to use unfair trade practices to steal American jobs and intellectual property will face stiff, defensive tariffs. China respects strength and takes full advantage of weakness. In the end it will be in China’s best interest to stop cheating on trade.

We should be very skeptical of a former steel executive's pitch for a "tough" trade policy, though. Beyond wrongly characterizing trade deficits, the Trump campaign demonstrates a penchant for cronyism, promoting a policy that protects industries like steel at the expense of other American businesses and consumers.

Let's first consider what Mr. DiMicco refers to as "trade cheating" and focus, as he does in particular, on China. Under WTO rules, counties may apply temporary tariff measures on a product from a particular country that they find to have been dumped in their market, meaning it has been sold below the price at which the product is sold in its home market. Countries may also apply temporary duties on products found to have been illegally subsidized by a foreign country. These subsidies and dumping practices are what DiMicco calls "trade cheating," for which defensive tariffs, more commonly referred to as trade remedies and, more specifically, anti-dumping and countervailing duties (AD/CVD), can be applied. The U.S. International Trade Commission reports that the U.S. has 365 AD/CVD orders in place. Steel products are subject to the bulk of these orders at 173. And, of orders on steel products, 44 are against China. That is more than twice the second most orders against a country, Korea, with 17 against it. If China is "cheating," the U.S. has done more than enough to reprimand them.

To be fair, there is a gross overcapacity of steel being produced in China, and, as such, there are certainly instances where China is in technical violation of the WTO agreements. However, as Cato Institute senior fellow and former ITC commissioner Daniel Pierson writes, capacity problems in China can benefit American businesses and consumers, and, alternatively, trade remedies can actually make conditions worse. American application of trade remedies is often skewed toward the interests of powerful, well-connected industries like steel. This is at the expense of down-market companies that buy steel as inputs for their own production, and, as a consequence, both they and their customers are left to pay higher prices. As Pierson illustrates, these producers offer far more value to the U.S. economy, and access to low priced steel only makes them more valuable.

There is also little evidence to support DiMicco's implication of an existing "trade war," that China has engaged in a directed assault on the United States economy. Not even existing trade remedies provide evidence of this "war." For instance, the intent of anti-dumping laws, at least in theory, is to prevent what's called "predatory dumping," intentionally exporting at a lower price in order to run a competitor in the importing market out of business. However, such activity rarely, if ever, occurs. Nor do American anti-dumping laws necessarily address only "predatory" practices. In fact, using a complex system of calculations and discounts, the Department of Commerce and the ITC can find a dumping violation in nearly any instance, even including those in which an alternative calculation can produce a negative dumping margin.

Despite the fact that the U.S. already applies more defensive tariffs than needed to prevent real "cheating," the Trump camp insists on being "tougher" on trade. Ultimately, the Trump Trade Doctrine perpetuates the furtherance of a policy pushed by the crony industry Mr. DiMicco represents. It has nothing to do with being "tough" or addressing "trade cheating;" rather, it props up a handful of companies who cannot compete in the global market at the expense of overall U.S. economic welfare (and ironically, GDP growth). Trump proclaimed at the Republican National Convention, "I'm with you," but his commitment to protecting big steel is proving otherwise.

Mr. Trump and his fellow candidates for president should not be focusing on "unfair" trade or calling deals like the Trans-Pacific Partnership "a rape of our country." Candidates should instead embrace free market policies, including trade remedy reforms, that will lead to economic growth and improved livelihoods for the vast majority of Americans.