A Penny for Your National Security
A great wailing and gnashing of teeth arose across the land after the Trump administration announced its plan to place tariffs on imported steel and aluminum. Some conservatives cried that the tariffs, 25 percent on steel and 10 percent on aluminum, would incite an international trade war.
House Speaker Paul Ryan claimed the moderately sized tariffs on two metals would reverse the economic boon he thinks will surely be created by the tax breaks his party gave to corporations and the rich. The good times would be over. Kaput!
This drama comes from a politician who proposed a border adjustment tax on all imports, not just two metals, that would have cost American consumers $1 trillion. This hyperbole comes from conservatives who deliberately blind themselves to the devastation Chinese trade cheating has caused the American steel and aluminum industries. This hysteria comes from corporations that use steel and aluminum and are apparently just fine with Chinese trade violations completely killing off American producers, leaving the country without domestic suppliers of metals essential for national defense.
The tariff proposal wasn’t sudden or out of the blue. It came after the President announced last April that the U.S. Department of Commerce would evaluate whether the damage done to the American steel and aluminum industries by bad trade endangered national security. Commerce told the President in December that it did. And it recommended remediation through tariffs, import limits or both.
The Commerce Department estimates the cost of the tariffs to the U.S. economy at $9 billion, which is a fraction of one percent of the nation’s total gross domestic product, and a fraction of the cost of Speaker Ryan’s border adjustment tax.
The beverage industry went crazy anyway. Coors, for example, claimed the tariffs would cost jobs across the beer industry and “American consumers will suffer.”
Here’s what Coors calls suffering: a penny price hike. There is about three cents worth of aluminum in a beer can. A 10% tariff on aluminum could increase the price of an entire six-pack of Coors by not quite two cents. Little more than a penny.
Frankly, an extra penny or two doesn’t sound like real suffering. It’s not clear just how many football fans would forego the six-pack for Sunday’s game because of that extra penny. It’s not clear just how many beer industry jobs will really be lost because of one extra cent per six-pack.
The additional cost to a new car, which contains much more steel and aluminum, would be more significant. A senior economist at Cox Automotive estimated it at $200.
But that’s only if American aluminum and steel companies raise their prices by 10 and 25 percent. They are not subject to the tariffs, so they don’t have to. But they may need to increase their prices because China has been dumping aluminum and steel on the world market at prices under production cost.
China is massively overproducing the metals at massively subsidized mills. The Chinese government owns some mills and provides supports for the industries in the form of loans that don’t have to be repaid, low-cost or free raw materials and underpriced utilities. It then dumps its excess aluminum and steel on the world market at super-discounted prices. This forces down the price of the metals to the point where mills in free market – as opposed to communist – economies go bankrupt. It is a trade war perpetrated by China on the rest of the world.
China’s practices violate international trade rules. The United States, in conjunction with European allies and others, has repeatedly over the past decade negotiated with China to stop defying the rules it agreed to abide by when it gained entrance to the World Trade Organization in 2001. China repeatedly has said it would. And then it doesn’t.
This has killed American mills, thrown tens of thousands out of work and devastated mill towns. Steel employment in the United States has declined 35 percent since 2000, with 14,500 workers losing their jobs between January of 2015 and June of 2016. The plummet in aluminum employment was even steeper, with 58 percent of jobs lost in just the three years between 2013 and 2016.
In 2000, 105 companies produced raw steel at 144 U.S. locations. Now 38 companies forge at 93 locations. There’s only one company left in the United States that produces the Navy armor plate used to build the Virginia Class Submarines.
Over the past six years, six aluminum smelters closed permanently. Just five remain, with only two operating at full capacity. And only one of those produces the high-purity aluminum required for defense aerospace needs.
To see real suffering, Coors might take a look at unemployed aluminum and steel workers and their crumbling communities. Coors should note that U.S. Steel, Republic Steel, and Century Aluminum have announced that the tariffs will enable them to reopen closed mills and rehire as many as 1,700 workers.
Unlike Coors, conservative TV commentators and Speaker Ryan, most Americans are willing to pay the extra penny per six-pack to ensure their country has the domestic aluminum smelting and steel forging ability that is crucial to national security.
