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Trump’s doomed plan to bring back steel jobs

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At the heart of Donald Trump’s presidency is a promise to blue-collar America — a promise to reinvigorate iconic industries and restore millions of manufacturing jobs, by defeating the foreign companies that have siphoned them away. Trump has thrown far more words than actions at that promise, but, in one case at least, that could be changing — though probably not to much effect.

Trump has made clear that protecting the steel industry — and steel jobs — is one of his top priorities. He’s vowed to make it harder for companies to buy cheap imported steel, and this week he announced plans to make all federal contractors use American steel in public infrastructure projects.

On Thursday, Commerce Secretary Wilbur Ross said he has launched an investigation to determine if blocking more steel imports is a matter of national security. Under the rarely used 1962 Trade Expansion Act, the Commerce Department can enact emergency trade sanctions if it’s in the interest of America’s national security.

That could be the case if “we have a rapid military buildup,” Ross said at a Thursday White House press briefing.

Protecting the steel industry from foreign competition is one trade issue that Trump and his team won’t let go of, and China continues to be his main target.

What Chinese steel producers are doing is known as “dumping” — selling a product at a cheaper price in one country than at home or in another country. This often hurts a country’s domestic producers and workers, so the World Trade Organization believes it’s fair for countries to levy tariffs as a way to level the playing field with global competitors.

American steelmakers have long accused China of harming their industry by flooding the United States with cheap steel imports. Before Trump’s meeting earlier this month with Chinese President Xi Jinping, a handful of senators from “Iron Range” states, like Indiana and Ohio, urged him to tell Xi that dumping steel into the US is unacceptable. They blame steel dumping for more than 13,000 layoffs and billions of dollars in losses in their home states.

On March 31, Trump announced an executive order that would toughen enforcement of anti-dumping laws and make sure tariffs levied against companies were collected. On April 18, he announced another order that will require federal contractors to use only American-produced steel in public infrastructure projects. These actions, meant to protect American industries against foreign competition, fit nicely with Trump’s promise to revive factory jobs. The nation’s largest steel mills are located in states that turned out heavily for Trump during the election, like Indiana and Ohio.

While cheap imports likely hurt American steelworkers, economists believe they’re hardly the main cause for the decline of the steel industry. And making it harder to import cheap steel will hurt other American industries that depend on steel, such as automakers and appliance manufactures.

This much is clear: Anti-dumping tariffs don’t do much to protect workers. It would take a drastic policy change to actually stop dumping. And anything that raises the price of steel actually hurts other American industries.

Punishing Chinese companies can’t save American steel on its own

Low demand for steel and decades of automation are the main reasons jobs at American steel mills are disappearing, and no amount of tariffs on Chinese steel can change that tide.

“The deal with these kinds of protections is that they don’t change long-term trends,” says Michael Moore, an economics professor at George Washington University. “The thought that a 55-year-old worker is going to keep their job because you put a tariff on imports is ridiculous.”

Moore worked at a Texas steel mill in the late 1970s, when there were plenty of steel jobs that paid the equivalent of $30 an hour. But machines now do much of the assembly line work that he did. “Many of the guys I worked with have lost their jobs,” he says. “Back then, it took 10 workers to make a ton of steel. Now it takes one.”

Yet the Trump administration insists that toughening anti-dumping laws will be a great solution to fulfilling Trump’s promise of putting “American-produced steel back into the backbone of our country.” Doing that will be hard. The administration could step up enforcement of anti-dumping laws, but rewriting US trade law would require the help of Congress — something the president hasn’t had much success with lately.

China floods the globe with cheap steel exports, costing workers jobs

Chinese companies are able to sell steel cheaply in the US because China produces enormous amounts of it — about half of all the steel produced in the world.

Construction of massive steel mills started in the late 1970s, as the Chinese economy began to be (largely) opened to the outside world and record growth and industrialization lifted 800 million people out of poverty. It was a time when construction was booming in China. “When you are moving hundreds of millions of people from villages into cities, you need to build highways and apartments and infrastructure,” says Chad Bown, a senior fellow at the Peterson Institute for International Economics in Washington, DC. “When [their economy] was growing 10 percent per year, they needed all that steel.”

Starting in 2010, the Chinese economy began to slow down and its need for steel diminished. But Chinese steel production didn’t slow down in response — creating a glut of steel in the global marketplace that lowered prices and threatened steel mills across the globe. International steel prices plummeted from more than $500 per ton in 2012 to $50 a ton in 2016. There’s no way to track how many workers lost their jobs as a result, but in 2016, factories in Europe and Mexico laid off thousands of steelworkers. In the United States, which is the world’s second-largest steel consumer, the steel giant US Steel laid off a quarter of its salaried workers in August, who were mostly in Pennsylvania.

The steel industry is particularly prone to dumping because there is so much global demand for it. And since it’s so expensive to build and run a steel mill, steelmakers are especially sensitive to foreign competition when there is too much steel in the global market. “Steel companies around the world are known for going to their governments and saying they are injured by dumped imports and that they want tariffs to be imposed,” says Bown. In past decades, the United States has punished Japanese and German steelmakers with anti-dumping tariffs.

Countries can punish dumping to protect businesses and jobs

Dumping isn’t illegal, in the criminal sense. But under US trade law and WTO rules, it’s fair game for America (and other countries) to slap tariffs on underpriced imports from certain companies if they can prove it’s harming local industries. Usually the Commerce Department will levy tariffs on all companies in the country that export the same product to the United States, though the tariff can vary from one company to the next. The idea is that the penalty will protect American manufacturers and keep them competitive in the United States.

While most economists I spoke to think it’s fair to levy tariffs on dumped Chinese steel, they don’t seem to think it makes much of a difference. The excessive amount of Chinese steel in the world has helped keep down the global price of steel, so steel consumers could just buy cheaper steel from another country.

“The anti-dumping laws have been on the books for decades and the US has enforced quite a few dumping orders, but this hasn’t really solved the problem,” says Kara Reynolds, an economics professor at American University.

In March 2016, the Obama administration levied tariffs of more than 200 percent on certain Chinese steel products, but that only damped Chinese steel exports slightly. This past month, the US Trade Commission announced that a new wave of tariffs was coming on low-priced Chinese steel sheeting.

But these tariffs will do little to slow down Chinese steel production unless the Chinese government stops propping up the industry. Because of the economic slowdown in China, the country no longer needs all the steel it produces, so the steel mills are exporting it in mass quantities. These mills might be losing money, but the Chinese government is keeping them open to avoid laying off hundreds of thousands of workers.

What American steelmakers want is for Trump to tell China to shut down many of their steel mills, Bown says. But that would be a massively unpopular political move in China, and Chinese leaders have shown no intention of doing so.

Anti-dumping laws can’t do much

The problem for American steel companies is that anti-dumping laws seem to have little impact. In the past three years, the US steel industry has brought more than a dozen such cases to the Commerce Department and the US Trade Commission — some leading to tariffs of more than 500 percent on certain Chinese steel products used to make cars and appliances.

While that may have stopped American companies from importing some Chinese steel products, that doesn't necessarily mean they are now buying American steel. They can still get cheap steel elsewhere, like Vietnam or India.

Is there any way for anti-dumping laws to work? Thomas Howell, a trade attorney who has represented American steelmakers in anti-dumping cases for more than 20 years, says it would help if the federal government sped up its anti-dumping investigations.

“You get an anti-dumping duty after a year of preparation and then there’s the litigation,” he says. “During all that time, you are still suffering the effects of the dumping.” On top of that, companies cannot collect monetary damages under the law, and penalties aren’t retroactive to the time the dumping started.

Trump believes he can solve this problem, and it’s a personal issue for several of his Cabinet members. For example, his nominee for US Trade Representative, Robert Lighthizer, is a high-profile trade lawyer who has successfully represented US steelmakers in anti-dumping cases, and Ross, the current commerce secretary and former billionaire investor in distressed companies, made millions from purchasing flailing steel companies.

The Commerce Department regulates trade practices, so it wouldn’t be surprising to see more penalties levied against Chinese steel imports. Both Cabinet members have agreed to investigate the role of dumping in the trade deficit, and will look at ways to ramp up enforcement.

Right now, to save steel jobs, the administration would need to do something far more extreme than slap tariffs on Chinese imports. It would basically need to halt trade with China. While that would be great for the steel industry and would likely bring back many steel jobs, it would have a devastating impact on American companies and consumers that rely on Chinese imports, says Derek Scissors, an Asia economist at the American Enterprise Institute.

“We are absolutely right to say they are hurting our firms,” says Scissors. “But there’s no way for us to change that unless the administration takes radical action that would extend far beyond the steel industry.”

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