Gerard Scimeca – Chairman, CASE
June 18, 2019
Establishing free and fair trade agreements between the United States and other nations has been a challenging task for President Trump. But in recent weeks, the Trump administration took a critical step forward when it brokered agreements with Mexico and Canada to lift steel tariffs and avoid costly quotas. The deal is a major step forward in the move to ratify the United States-Mexico-Canada Agreement that the President and his team negotiated.
With a narrow window of opportunity, the tariffs, or quotas, on steel were a serious roadblock to finalizing this important trade deal. The tariffs were strongly opposed by many free-trade supporters in Congress and created a standoff with our trading partners. U.S. Trade Representative Robert Lighthizer referenced this impasse and told lawmakers, “If the USMCA doesn’t pass, it would be a catastrophe across the country.”
One year ago, the Trump administration decided to impose tariffs on imported steel and aluminum on a number of trading partners, including the European Union, Canada, and Mexico. The international response was unanimous; many in the trade community regarded the tariffs as an unprecedented strike against good faith efforts to reduce trade deficits among historically strong allies. The White House should be commended for trying to recover lost manufacturing jobs and protect national security interests, but extensive tariffs and quotas have proven to be a bridge too far and have resulted in a bitter standoff. They have resulted in retaliatory actions by our trading partners and have raised prices for numerous U.S. industries which use imported steel.
The protectionist route of tariffs and the application of strategic trade, not free trade, matches Trump’s populist “America First” message. There is certainly justification for addressing various concerns about our trading allies and modernizing certain trade deals (such as NAFTA) to look out for America’s interest. However, there is growing recognition that widespread tariffs, especially on steel and aluminum, is causing harm and undermining President Trump’s thriving economy.
American economic interests have been damaged by the past year’s tariff war. The Federal Reserve Bank of New York found that U.S. businesses and consumers saw an increase in the price of goods to the tune of at least $6.9 billion. A recent study from Trade Partnership Worldwide shows that while steel workers have experienced increased levels of employment, a far greater number of workers in steel-consuming sectors have lost jobs. An estimated 126,900 workers gained jobs because of the tariffs, but an astounding 1,061,400 people lost employment.
It’s also impossible to ignore the effect of tariffs on a variety of industries. The oil and gas industry uses specialty pipeline-grade steel in nearly every aspect of the energy production process. Drilling rigs, pipelines, production facilities, refineries, and petrochemical plants all need highly specialized imported steel. Tariffs ultimately mean higher production expenses which ultimately translates into higher energy costs for consumers. Construction, automobile, machinery, and many other steel-consuming industries also rely on competitively priced sources of steel.
While tariffs increase the cost of production, replacing them with a hard quota, as some in the administration had floated as a compromise, would have made it impossible to obtain at any price some of the specialty steels required for U.S. energy projects. As Kyle Isakower of the American Petroleum Institute pointed out, “to replace tariffs with quotas is to exchange the frying pan for the fire.”
Beyond the economic damage was the political damage of the tariffs. A failure to resolve the steel tariff issue was putting the USMCA deal in serious danger. Opting to save the USMCA, the Trump administration eliminated these barriers, giving the regional partners hope of ratifying what would be the largest trade deal in U.S. history. The White House deserves credit for working to recover lost manufacturing jobs and protect national security interests.
The USMCA is a modern, rebalanced trade agreement with our strongest regional partners, and removing these trade barriers will ultimately advance the interests of American workers and businesses. It’s a good deal for all countries, and for Trump it would represent one of his most significant economic achievements to date.
