Steel and Aluminum “Made in U.S.A.”

The recent tariffs on imports of aluminum and steel announced by President Donald Trump have shaken the international trade system forcing other nations and economic blocs to retaliate, at least rhetorically. The European Union, for example, said they would study the possibility of raising tariffs on the export of American bourbon and peanut butter.[1] Brazilian steel workers protested outside the U.S. embassy, China indicated that cooperation was better then a trade war, and Canada’s Prime Minister Justin Trudeau immediately began to lobby for a Canadian exemption.[2] Meanwhile domestic and international media began to construct a chaotic situation, talking about the negative impact on the international system, domestic consumers, and producers dependent on aluminum and steel.[3] Economists advocating for the preservation of the Free Trade status quo called the move irrational and backward, highlighting a return to the old protectionist mercantilist model. The public, for the most part distracted from the dynamics of international trade and the historical path toward globalization, quickly reacted against the policy while labor advocates in the U.S. and nationalists praised the initiative. The polarized views of our country were this time reflected on the tariff debate, as the world looked at us stupefied over the revision of the status quo.

Steel Imports by Country

Since the early 1990s the international trade system got used to an American economy that, with the endorsement of local policy makers and a majority of citizens, became accustomed to an incremental trade deficit that became more and more dependent on internal personal consumption as a formula for sustaining national economic development.[4] Translation; the United States became dependent on people buying more and more stuff and accumulating more and more debt, as a means of keeping the economy afloat. While the rest of the international markets lived within their means, aiming toward a trade balance or a trade surplus that would allow them to invest internally in social programs, defense, infrastructure, and long-term economic development without accumulating debt, we opted to fall deeper and deeper in debt, and rewarded both parties for leading us into this abyss.

“United States Balance of Trade.” Trading Economics

Historical evidence shows that since World War Two policy makers were able to implement trade policies that kept us in a long-term trade balance, even experiencing trade surpluses in the mid 1970s, and reaching an all time high of $1946 million in June 1975.[5] Then in the early 1980s the nation began to experience annual trade deficits as the implementation of neoliberalism altered trade policies. Bill Clinton’s administration was able to lead the nation back into a temporary trade balance but this trend did not last long, and soon after signing the North American Free Trade Agreement (NAFTA) the nation’s trade balance spiraled into incremental deficits that accelerated under each consecutive administration, reaching a record low of $-67823 million in August 2006.[6] We have lived under a trade deficit for more than thirty years, falling deeper in debt each year. If you own a credit card, you know that this is not the best way to manage it.

The only way out of debt is to reach a trade surplus but no administration since the Clinton administration has dared to take this step. It is unpopular domestically and internationally because being financially responsible means tightening one’s belt, not spending beyond one’s means, and changing one’s habits. Establishing a trade policy that will incentivize American industries to produce more aluminum and steel, and eventually even exporting production surplus in the future is not an absurd vision. Early in our nation building history, we were self-sufficient in these and many other commodities.

Last year the United States imported a total $22.5 billion worth of steel and $18.7 billion of aluminum. This represented less than 2 percent of total goods imported.[7] Canada sold us 16.7 percent of that steel, followed by Brazil (13.2%), South Korea (9.7%), Mexico (9.4%) and Russia (8.1%).[8] Meanwhile the Canadians supplied us with 37.12 percent of our total aluminum imports followed by China (14.78%), Russia (6.96%), the United Arab Emirates (6.17%), and Mexico (4.43%).[9] Clearly Canada has a reason to complain, and Mexico to a lesser extend, since their dependency on our market them vulnerable to the tariffs. It explains why the Trump administration excluded them from the tariffs. Nevertheless, the breakdown of imports of aluminum and steel demonstrate how dependent the three nations are on trilateral Free Trade Agreement. Globalists, however, are not content with this level of dependency and want to increase it even more, thus their reaction to the recent tariffs.

The globalists’ argument that this trade deficit is good for the United States because the consumer benefits from cheaper goods thanks to the supply from foreign markets, is a construct derived from the ideas of Comparative Advantage and efficiency within the international trade system. The implementation of the macro economic theory works when our exports can then make up the difference in the global market system, but they tend to be less favorable when we sink deeper and deeper into a trade deficit.

How high can our trade deficit reach before we are in trouble? According to the tariff initiatives of the current administration, the answer seems to be not much more. It is argued that the tariffs are part of a strategy to create leverage for future NAFTA negotiations and it is also said that it is part of president Trump’s initiative to comply with his campaign promises, but it seems to me that it is also a first step toward reducing our trade deficit. While China ($511 billion), Germany ($285 billion), Russia ($90 billion), South Korea ($89 billion), Netherlands ($66 billion), Italy ($57 billion), Ireland ($52 billion), Taiwan ($50 billion), Singapore ($47 billion), Brazil ($42 billion), United Arab Emirates ($41 billion), Japan ($38f billion), Saudi Arabia ($36 billion), Switzerland ($35 billion), and numerous other nations registered healthy trade surpluses last year, we continued to dig ourselves deeper into a whole.[10] We are the only nation within the international system that depends heavily on internal consumption for long-term economic growth.

Kerkhoff. “Breaking Down the US Economy.”

It is shocking that 68.5 percent of our Gross Domestic Product (GDP) depends on Personal Consumption Expenditures; putting us in a vulnerable position if for any reason in the future we stop our aggressive consumption pattern because of an international financial crisis, unsustainable personal debt or simply because Millennials and those from the Generation Z are not willing to consume at the pace of Boomers.[11] Remember, these new generations will enter the consumer market with heavy debt and not very willing to accumulate further debt. Maybe these will be the generations that will rise to power and lead the nation to a trade balance.

Irresponsible administrations in the past thirty plus years were complaisant with the international trade system, sacrificing the nation’s wellbeing in exchange for the prosperity of the international system, and disregarding the dangers of becoming more and more dependent on a system that negatively impacts the wellbeing of our local communities as well as our small business sector. These were the leaders that engineered the permissive policies that facilitated Multinational Enterprises’ ability to pack up and leave in search of global markets that offered cheap labor, greater deregulation, fiscal advantages, and greater trade benefits.

If Hillary Clinton had won the elections, the acceleration of globalization would have maintained its pace and the defense of the status quo would have been a priority. Unfortunately, for globalists, a Trump presidency has resulted in the revision of the status quo. Globalists on both sides of the aisle have been forced to publicly defend the international system over their own constituents, distancing themselves from the American worker. Meanwhile those in the left have remained silent over the tariff issue, knowing well that they approve the new policy and the revision of the globalist agenda.

Globalists have interpreted the tariffs as a threat to Western alliances, tradition, historical international trade relations, and tacit agreements that dated back to the early developments of the liberal global economy. How could the president of the United States, the guarantor of the international system’s status quo, dare shift directions on aluminum and steel imports? How dare he change the dynamics of interdependency with top Western importers? Why shift back to antiquate Mercantilist protectionist positions of the past? Why revise the trajectory of globalization? Why rejuvenate American industrial production systems and bring back blue-collar jobs to aluminum and steel country? Why alter the current dynamics of international trade of aluminum and steel?

The fact is that we are moving toward uncharted waters. It is not clear what the impact of these tariffs will be, but what is clear is that the current administration is committed to rewriting the rules of the game on international trade. I disagree that we are reversing toward a Mercantilist model, but I do believe that Mercantilists initiatives will be combined with Free Trade initiatives in order to carve out a new international trade strategy for the United States. I also believe, as indicated by Cleo Paskal at the latest Camden Conference in Belfast, that the dynamics of international trade will move away from an Atlantic-centered world and toward a Pacific-centered one. In that case it is better that we prepare ourselves for stiff competition, where greater interdependence means less flexibility to maneuver within the system. Greater self-sufficiency in strategic markets such as steel and aluminum production might position us better in the future, knowing well that China is already the dominant global producer of these and other commodities. We can no longer have the luxury of putting our Western allies and the international system’s interests ahead of own national interest.

[1] “US Metal Tariffs: Mexico and Canada may be Exempt.” BBC. March 8, 2018. Accessed March 8, 2018. http://www.bbc.com/news/world-us-canada-43325060.

[2] Ibid. For more on Canada’s position see; Kathleen Harris and Matt Galloway. “Trudeau says Liberals ‘on the Right Track’ with Trump as Canada Eyes Steel Tariff Exemption.” CBC. March 8, 2018. Accessed March 8, 2018. http://www.cbc.ca/news/politics/trudeau-trump-steel-nafta-1.4567286.

[3] See, for example, Colin Woodard. “Proposed Tariffs on Canadian Steel Could Backfire on Maine.” Portland Press Herald, March 7, 2018. Accessed March 7, 2018. https://www.pressherald.com/2018/03/07/proposed-tariffs-on-canadian-steel-could-backfire-on-maine/.

[4] Matthew Kerkhoff. “Breaking Down the US Economy.” Financial Sense. February 17, 2016. Accessed March 8, 2018. https://www.financialsense.com/contributors/matthew-kerkhoff/breaking-down-us-economy.

[5] “United States Balance of Trade.” Trading Economics. 2018. Accessed March 7, 2018. https://tradingeconomics.com/united-states/balance-of-trade.

[6] Ibid.

[7] For more statistics on steel imports see “Steel Imports Report: United States.” International Trade Administration. December 2017. Accessed March 4, 2018. For more statistics on aluminum imports see, “Industry Statistics.” The Aluminum Association. Accessed March 7, 2018. http://www.aluminum.org/statistics.

[8] Reuters Staff. “Factbox: Top Steel Exporters to the United States.” Reuters. March 2, 2018. Accessed March 9, 2018. https://www.reuters.com/article/us-usa-trade-factbox/factbox-top-steel-exporters-to-the-united-states-idUSKCN1GE10I.

[9] Emily Balsamo. “Aluminum Tariffs will Mean More U.S. Jobs, but Higher Prices.” Reuters. March 5, 2018. Accessed March 9, 2018. https://blogs.thomsonreuters.com/answerson/aluminum-tariffs-will-mean-u-s-jobs-higher-prices/.

[10] “The 20 Countries with the Highest Trade Surplus in 2016.” Statista. 2018. Accessed March 9, 2018. https://www.statista.com/statistics/256642/the-20-countries-with-the-highest-trade-surplus/.

[11] Kerkhoff. “Breaking Down the US Economy.”

Stefano Tijerina

About Stefano Tijerina

My name is Stefano Tijerina and this blog’s objective is to connect Maine’s social, environmental, economic, cultural, and political issues to the global system, centering on how the local impacts the global and how the global impacts the local or what is known in Global Studies as the "Glocal" effect. In our present era of globalization it is crucial for the general public to understand how the new dynamics of the international system impact our lives here in Maine and how our local decisions impact the earth.