Trump’s trade wars

March 19, 2018

Excellent analysis by Michael Roberts on the growing trade wars and why neither "free trade" nor protectionism benefits the working class. Go to the original for the full article and numerous graphs. --PG

Trump’s trade tantrums – free trade or protectionism?
Michael Roberts Blog

Today, the finance ministers of the top 20 economies (G20) meet in Buenos Aires, Argentina, and the big topic for discussion is trade protectionism and the possibility of an outright trade war between the US and other major economics areas, particularly China.

There is a real concern that all the blustering by President Trump is finally turning into reality and ‘The Donald’ is now going to honour his promise to ‘make America great again’ by introducing a range of tariffs, quotas and bans on various imports from Europe and Asia into the US. Trade protectionism is coming back after decades of ‘free trade’ and globalisation.

Up to now, Trump has only imposed tariffs (taxes or enforced price rises) on steel and aluminium imports. But he has also pulled the US out of the Trans-Pacific Partnership (TPP) and demanded a re-negotiation of the terms of North Atlantic Free Trade Area (NAFTA). But there is talk of more measures, including action to stop the free exchange of intellectual property rights by US companies and other countries.

The steel and aluminium tariffs (facilitated by an old GATT loophole, allowing countries to enact barriers for reasons of ‘national security’ (US defence spending consumes 3% of US steel output) are really small beer on their own. In 2002 when the US last imposed steel tariffs, the US produced almost as much steel as today. But now it produces it with a small fraction of the 2002 workforce. Technology has boosted productivity and created products that use less steel. So direct job gains for US workers are likely to be small, if any.

Back in 2002, President Bush signed into law tariffs for certain steel products following a spate of mill closures and surging imports. The net effect on employment in the steel production industry was minimal. But, according to a Trade Partnership Worldwide study, businesses that consumed steel products shed approximately 200,000 jobs, compared to the 180,000 employed in steel production. The pain was born principally by smaller manufacturing firms (smaller than 500 employees), which had limited room to negotiate on prices and similarly restricted space to pass costs on due to price competition. The Bush barriers were only in place for a little over a year, but the impact was immediate as price distortions squeezed end users.

If the impact on the employment figures of effectively raising the cost of steel was uppermost in Trump’s mind, he should have considered the potential net loss of jobs in the car industry, the aviation industry and the countless other manufacturers that depend on cheap steel as a raw material. These companies are expected to pass on the extra cost to their customers and suffer the usual consequences – lower demand and a profit squeeze.

Moreover, since 2002, US steel mills have moved south and west, where unions are weak and labour is cheaper. But now the industry has fewer workers because it is increasingly automated. The Trump tariffs will not bring any new jobs and certainly not in the old steel ‘smokestack’ regions that looked to him for help. The real hit will be on many emerging economies. Canada and Mexico are exempt from the tariffs because they are part of NAFTA. But Brazil is a big exporter to the US. Canada and Brazil account for around one-third of US steel imports, while China accounts for no more than 3%. With Canada exempt and China unimportant, Trump’s ‘steel’ protectionist move is both weak and misdirected.

Anyway, Trump’s claimed objective to ‘make America great again’ by boosting steel production and other traditional industries means rolling back the advance of technology to recreate smokestack industries. It can’t and won’t happen. Trump’s claim that American workers have been losing jobs in traditional ‘smokestack’ industries because of unfair trade by other countries is bogus. The loss of US manufacturing jobs has been replicated in other advanced capitalist economies over the last 30 years. This decline is not due to nasty foreigners fixing trade deals. It is due to the inexorable attempt of American capital to reduce its labour costs through mechanisation or through finding new cheap labour areas overseas to produce.

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