President Trumpís new tariffs on steel and aluminum imports are facing an avalanche of false criticism. Naysayers argue tariffs will raise prices, spark a trade war, and do nothing to bolster Americaís military preparedness ó the official rationale for the move.
In wartime, though, aluminum and steel are essential to make tanks, planes, and other weapons. The aluminum and steel industries are in dire straits, with many plants idle or operating far below capacity while cheaper metal flows in from other countries.
McKinsey & Company explain that most producers ďlack the cash for investments needed to remain viable in the long run.Ē Their outdated plant and equipment prevent them from using newer, more cost-efficient production methods and adapting to world competition.
Tariff bashers claim in war, America could rely on these foreign suppliers. Thatís ridiculous. Uncle Sam can compel our manufacturers to make defense needs a priority ó but not foreign producers. The biggest suppliers targeted by the tariffs are Brazil, South Korea, Russia, and Turkey. Should our nationís victory in war hinge on them?
Tariff opponents argue that Americaís military needs for steel and aluminum amount to only 3% of domestic production. Thatís now. In a major military conflict, those needs would soar. In World War II, domestic steel producers had to increase production over 200% to meet military demands.
Critics claim tariffs will raise steel prices. Thatís questionable. The opposite is more likely to happen, industry experts suggest. Tariffs will shift demand to domestic steel, enabling plants here to operate closer to capacity. That will bring down the unit price of American-made steel ó not raise it. Thatís Economics 101.
Tariff bashers also accuse President Trump of abandoning ďfree trade.Ē Donít believe it. American workers are being stung by sucker trade ó not free trade. American-made autos are hit with a 10% tariff by European countries, four times higher than the tariff on European-made cars sold here.
Donít hold your breath for help from the World Trade Organization ó a conclave of 164 nations, mostly poor and anti-American, empowered to impose binding trade rules. America gets clobbered at the WTO, just like it does at the United Nations.
Here are the facts overlooked in the tariff debate:
Because of imports, domestic metal producers have to run plants at just 74% of capacity, according to the St. Louis Federal Reserve Bank. Making steel that way is like using the oven to bake a couple of cupcakes instead of a full batch.
The unit production cost soars ó whether itís cupcakes or steel. Mr. Trumpís Commerce Department proposes using tariffs to reduce imports, enabling domestic steel production to top 80% of capacity.
Do the math. While imported steel will cost more , imports will drop from one third to one fifth of all steel used here. Most of the steel used here will be made here, and prices will likely decline, as furnaces operate closer to full capacity.
The other bonus: jobs. U.S. Steel and Century Aluminum are already ramping up, bringing back hundreds of workers.
Critics call this small potatoes, compared with jobs that could be lost in other manufacturing areas ó such as autos ó if steel prices rise. Thereís no concrete evidence that would happen. Itís speculation.
What isnít speculation is how Mr. Trumpís tariffs have brought countries to the negotiating table in only days . Mexico and Canada won an exemption ó for now ó by holding out the possibility of better terms for America under the North American Free Trade Agreement. The European Union is also willing to talk, despite some harsh anti-Trump rhetoric.
Last week the head of the WTO vilified Mr. Trump for putting the world at risk of a ďtrade war.Ē This free-trade rhetoric is disguised anti-Americanism. There is no free trade, but America imposes fewer tariffs than almost any other country. Half the average weighted tariffs imposed by China, one third those imposed by Mexico, and one quarter what India imposes. You wouldnít know it, listening to the WTO. Americans are better off trusting Mr. Trump on trade.