A Wall Street Journal headline writer likely sensed something amiss with calls by U.S. steel producers for more protectionism. The August 12, 2015 WSJ print edition article by John W. Miller was titled: “Steelmakers Lodge New Trade Gripe.” The online version, dated August 11, drops the “Gripe” for a less skeptical headline: “U.S. Steelmakers Again Ask for Tariffs on Imports” (as usual Google full title to find article ungated).

The article notes this was the third trade complaint of summer 2015 by U.S. steel producers, claiming foreign firms were “dumping” steel below costs:

The request targeted imports of hot-rolled coil—used in making cars—from Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K. China wasn’t named in the petition because the U.S. already has tariffs on imports of that kind of steel from China. The petition was filed with the U.S. Commerce Department and the U.S. International Trade Commission.

This Wall Street Journal article doesn’t mention “dumping” by name, but a July 15, 2015 Duluth News Tribune article does: “Trade commission agrees foreign steel was ‘dumped’ in U.S.

The U.S. International Trade Commission on Friday announced a preliminary determination that imports of corrosion-resistant steel from China, India, Italy, South Korea and Taiwan injured the U.S. steel industry.

And:

 The companies claim that the increased below-cost imports of steel have reduced demand, in some cases forcing mill closures that have led to layoffs at Minnesota operations. …

“We are pleased the ITC has confirmed that the flood of unfairly traded imports of corrosion-resistant sheet steel has materially impacted our shipments, pricing and profitability,” said Mark D. Millett, chief executive office of Steel Dynamics. “SDI believes in fair trade, but the U.S. has become a dumping ground for world excess steel capacity.” 

However, the WSJ mentions the actual price of the hot-rolled coil steel used by U.S. carmakers and other manufacturers is actually higher than in Europe and Asia:

steel-mill-616536_1280The problem for U.S. steelmakers is sluggish prices, which are held down by inexpensive imports. The U.S. index price for hot-rolled coil, a benchmark product, has fallen more than 20% this year to $468 per ton.

That is still about $100 higher than the price in Europe and $200 above that in Asia, according to steel buyers, making the U.S. a tempting market.

Wait… what?  This hot-rolled coil steel–key for U.S. automakers–is 20% less expensive in Europe and 40% less expensive in Asia? Doesn’t that give a significant cost advantage to European and Asian automakers and other foreign manufacturers with access to significantly less-expensive steel?

If steelmakers in “Australia, Brazil, Japan, South Korea, the Netherlands, Turkey and the U.K.” are dumping steel in the U.S., they must be ultra-dumping steel in Europe and Asia. Either that or shipping costs are extraordinary low to U.S. buyers.

Imports of hot-rolled steel have increased according to steel industry executives, with the implication that foreign firms are dumping excess capacity onto U.S. markets:

Imports of hot-rolled steel from the seven countries named in the latest petition increased by about 73% from 2012 to 2014, rising from 1.9 million tons to 3.3 million tons, AK Steel said.

Wow, 73% is a big increase!  But also between 2012 and 2014 was a huge increase in U.S. demand, with booming rail and oil and gas infrastructure as well as auto manufacturing expanding, rising 19% in 2012, 7% in 2013, and 5.4% in 2014.

A May, 7, 2015 WSJ article, “U.S. Steel CEO Says Tariffs Could Be Needed On Chinese Imports” quotes Mr. Longhi, the new head of U.S. Steel, who has been cutting costs, laying off workers and boosting stock prices (and his pay). In addition to streamlining steel production, Mr. Longhi is trying to raise tariffs on imported steel, particularly steel from China:

Mr. Longhi blames the bulk of his latest woes on imports, especially from China. The U.S. imported 615,171 tons of steel from China during that time, up 25% from the same period a year before. Mr. Longhi said a failure to impose more tariffs on Chinese imports was an American political “weakness.”

In this article, steel tube is the focus, where demand has been hit hard and unexpectedly this year, after oil prices dropped by half last fall, and demand for steel pipe by shale drillers dropped soon after. The article blames imports:

Imports have been especially hurtful to the company’s business of making steel pipe and tubs for the oil and gas industries. 

Consider though that for U.S. manufacturers and U.S. consumers, lower prices for steel is a good thing. Only for the U.S. steel industry is lower-cost imported steel a problem.

Students researching U.S. trade policy with China can research these ongoing debates over steel imports and tariffs.

Tim Worstall in Forbes puts the question of steel tariffs this way in a June 4, 2015 column:

There’s two ways that we can describe the attempt by the US steel industry to gain anti-dumping tariffs against China and other countries. The first is that it is an attempt by that US business sector to protect themselves from that foreign competition. The other is that it’s an insistence that all Americans should become poorer in order that those profits and those jobs should be protected. Both of these descriptions are true: and the second follows logically from the first.

U.S. steel producers have continued their call for higher tariffs on Chinese steel. “U.S. steel producers to file charges against Chinese competitors,” (Reuters, September 22, 2016) reports:

The U.S. Commerce Department last week set preliminary antidumping duties ranging from 63.86 percent to 76.64 percent on stainless steel sheet and strip imports from China after preliminary findings showed the imports were being dumped in the U.S. market at below fair value.

The petition alleges that Chinese producers diverted their steel shipments to Vietnam “immediately” after the duties were imposed.

According to the petition, Chinese steelmakers sent their shipments to Vietnam, where they were modified to make them corrosion-resistant, and then sent them to the United States by paying Vietnam’s U.S. tariff rate, which is lower than for China.

Economist Richard Ebeling posted on Facebook a quote from an 1830s economics textbook, to give people a sense of economic principles taught nearly two centuries ago:

Here is what economics books used to sound like, from Thomas Cooper’s “Lectures on the Elements of Political Economy” (1830), on the principles and policies of economic logic and understanding on the benefits of freedom of trade and enterprise:

“The true principles of Political Economy, teach us that a system of restrictions and prohibitions on commercial intercourse, cuts off the foreign market, diminishes the number of buyers, and the demand for our national produce; hence, the consumer is compelled to pay more to the home monopolist.

“Hence, the wealth of the nation is wasted; every consumer is abridged of comforts that he might otherwise procure, and his means of purchasing even home-commodities are diminished.

“They teach us also, that men should be permitted, without the interference of government, to produce whatever they find it their interest to produce; that they should not be prevented from producing some articles, or bribed to produce others.

“That they should be left unmolested to judge of and pursue their own interest; to exchange what they have produced when, where, with whom and in what manner they find most profitable and convenient; and not be compelled by theoretical statesmen to buy dear and sell cheap; or to give more, or get less, than they might do if left to themselves, without government interference or control.

“That no favored or privileged class should be fattened by monopolies or protections to which the rest of the community are forced to contribute.

“Such are the leading maxims by means of which Political Economy teaches how to obtain the greatest sum of useful commodities at the least expense of labor. These are indeed maxims directly opposed to the common practice of governments, who think they can never govern too much; and who seek to prey upon the vitals of the community.”

This remains wisdom for our own time. 

Students debating U.S./China policy have an opportunity to learn the principles of international trade, and apply these principles to various reform proposals.

After learning witches are made of wood, peasants in Monty Python and the Holy Grail, are asked what, besides wood, floats. One peasants asks hopefully: “tiny rocks”? Well there are ways for rocks and other heavy cargo to float, and floating across the world’s oceans today are millions of tons of steel and aluminum forged and smelted in China.

By ship is by far the least expensive way for steel to travel from producers to consumers. Shipping costs from China to CaliforniOLYMPUS DIGITAL CAMERAa are lower than shipping by rail from steel mills in Pennsylvania, Ohio, and Indiana. So coastal Chinese steel and aluminum producers can have a significant cost advantage along America’s west coast, and can be competitive in markets in other coastal cities.

High taxes (tariffs) on imported aluminum and steel can save companies and jobs in domestic steel and aluminum industries, but are costly and job-destroying for U.S. manufacturers who depend upon these raw materials for their production processes.

The November 8, 2016 Wall Street Journal article “U.S. Says Aluminum Exports From Chinese Firm Evaded Restrictions” reports:

U.S. officials said a Chinese aluminum magnate is sidestepping U.S. trade sanctions, the latest development in federal attempts to rein in a flood of cheap metal imports that have overwhelmed U.S. producers.

The reporters uses says “cheap metal imports” are “flooding” the U.S. Here thoughscreen-shot-2016-11-14-at-9-31-17-am is an InvestmentMine chart showing 25 years of aluminum prices. Looks like aluminum prices have been going up and down over the years, with a surge in 2006-2008, followed a steep fall in prices with the financial crisis of 2008-2009, and prices surging after, then falling again.

When aluminum prices are high, producers make huge profits and tend to invest some of those profits in expanding output. As new capacity boosts supply, prices are pushed down, leading aluminum companies to reduce production but also to complain to Congress and the Department of Commerce about “dumping” by foreign firms.

Two points to keep in mind about imports of aluminum, steel, copper and other metals. First, as key raw materials to U.S. manufacturing, lower metals prices help U.S. manufacturers stay competitive. With steel prices up 70% so far in 2016, U.S. manufacturers face higher costs and often raise prices, making their goods less attractive to consumers. Firms trying to absorb much higher raw materials costs have less margin for raising wages, capital investment, and dividends.

Higher steel prices are a problem for manufacturing companies: “U.S. Steel complaint opposed by steel users” (Post-Gazette.com, May 14, 2016):

U.S. Steel’s campaign to exclude Chinese steel imports would make U.S. companies that manufacture products from steel less competitive, steel users told a federal agency. They also said domestic steelmakers either don’t want to make some of the steel they need or can’t make it as reliably as Chinese suppliers do.

It is not the case that steel (or aluminum) are monolithic products and few U.S. manufacturing firms want to purchase lumps of raw steel or aluminum. The article quotes various U.S. steel users who emphasize the benefits to them of access to specialized steel producers in China:

Michael Papera, who purchases steel for Allstate Can in Parsippany, N.J., told the agency that the steel his company buys from Baosteel of China “is by far superior to anything purchased domestically in the way of shape and performance.”

Baosteel is one of the Chinese producers targeted by U.S. Steel.

Neal Lux, president of Global Tubing, said the Dayton, Texas, company worked with an unnamed U.S. steelmaker to provide steel used to make tubing for the energy industry.

“The results were disastrous,” he wrote.

So it is interesting that with the media and think tank concern the Trump Administration might launch a damaging trade war with China, U.S. manufacturers are already suffering from ongoing trade disputes launched by U.S. steel and aluminum producers, and their associations, working through Department of Commerce  Anti-Dumping (AD) and Countervailing Duties (CFD) operations:

The Antidumping and Countervailing Duty Operations Unit is responsible for screen-shot-2016-11-17-at-9-53-42-amenforcing U.S. antidumping duty (AD) and countervailing duty (CVD) laws. AD/CVD Operations conducts investigations in response to petitions received by the Department from domestic industries and/or labor unions. AD/CVD Operations also conducts subsequent proceedings known as administrative reviews in which importers’ actual duty liability is assessed.

The Wall Street Journal reports on continued efforts to keep aluminum import costs high:

The Commerce Department in 2010 had punished China Zhongwang and other Chinese producers with tariffs as high as 374.15% after finding they were receiving illegal subsidies and dumping, or selling products in the U.S. below market prices.

Chinese firms receive subsidies from local, regional, and national governments in China. But so do many U.S. firms. General Motors and Chrysler were bankrupt in the financial crisis and bailed out by the U.S. government (along with various insurance and investment firms). U.S. aluminum production benefits from inexpensive electricity from federally-funded dams in the Pacific Northwest. State governments provide tens of millions in subsidies for new auto plants and other factories, plus spend millions on road and rail infrastructure to help these goods reach international markets.

Alcoa (Aluminum Company of America) is listed as #2 among the ten U.S. firms receiving federal subsidies (May 07, 2015):

You may not know Alcoa by name, but there’s probably at least one product with Alcoa aluminum in it somewhere in your home. As the world’s third largest producer of aluminum, Alcoa has an extensive history dating back to 1886 when it was first founded in Pittsburgh, Pennsylvania. The company has received $5.64 billion across 99 subsidies according to Find Good Jobs‘ report, which have helped the company go on to secure lucrative contracts for projects, like building jet engine parts.

As of the past few years, Alcoa has really been picking up steam. Production has increased at its numerous plants and stock prices have jumped as investors have taken notice. As the company continues to ramp things up, look for subsidy levels to remain high in coming years.

The federal government has spend billions on solar and wind power as well (though these subsidies, combined with renewable energy mandates, tend to raise energy prices and costs for U.S. firms and consumers). (This 2016 article disagrees, with study showing no statistical increase.)

Businesses and industries often turn to government both for subsidies for their operations and for trade restrictions hampering foreign competitors. Chinese firms lobby for subsidies and trade restrictions much as U.S. firms do.

Which firms receive the largest subsidies and the most effective/damaging trade restrictions, is a question for economists (and debaters) to research. But in all cases other manufacturing firms must deal with the challenge of higher prices and limited access to supplies needed for their operations. Firms in developed countries have integrated supply chains and Department of Commerce AD and CVD regulations throw wrenches in these supply chains.

The next Administration has the option reduce or remove disruptive and costly trade barriers, as well as to set up new ones.

Update: This November 14, 2016 Foreign Affairs article, “Will China Trump Trump? Antagonizing Beijing for Short-Term Gain,”  provides useful overview of problems neo-mercantilist policies would cause with current US/China/Mexico supply chains:

Overall industrial output in the United States is at a historical high, while manufacturing employment is at a historical low. As it happened with agriculture more than a century ago, technological progress, which leads to productivity gains, is to be blamed for the dearth of blue-collar jobs in the United States. Globalization only reinforces the underlying dynamics. Moreover, in a world of global value chains, where production is sliced and diced across the world, several imports from China, such as auto parts, steel, semiconductors, and plastics, are actually intermediate goods or raw material for U.S. exporters, meaning that they contribute to the value of the final good.

 

Previous posts have reviewed arguments both for and against additional trade restrictions with China.

William Perry’s May 25, 2017 US China Trade War newsletter writes:

We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore. The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole. The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice. They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts. In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Screen Shot 2017-05-26 at 11.09.39 AMThe above quote is from beginning of newsletter, this April 21 US Trade War website post reports imports from China will be hit, but the impact will especially harm downstream US manufacturers who rely on these materials to manufacture finished goods:

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

Automotive News (May 16, 2017) in “Commerce Dept. investigates steel imports used in auto parts,” explains:

In the auto industry, cold-drawn mechanical tubing is used to make stabilizer bars, shock absorbers and struts, trailer suspensions, axle shafts, half shells, spacers, steering columns and gears. Tubes also help reduce the number of welds, saving manufacturers time and money, while strengthening the structure and reducing overall vehicle weight.

The article notes over 150 other trade restrictions on steel imports are in place:

As of April 19, the Commerce Department has 152 anti-dumping and countervailing duty orders in place on steel from 32 countries. Twenty-eight of the 152 orders, or 18 percent, are on steel products from China.

American steel producers, associations, and lobbyists have added The steel orders represent almost 40 percent of all anti-dumping and countervailing duty orders in place. There are also 25 investigations underway for steel products.

U.S. Steel Giants Warn Foreign Imports Imperil National Security claims to economic damage claims, “U.S. Steel Giants Warn Foreign Imports Imperil National Security,” (Bloomberg Politics, May 24, 2017):

Chief executive officers of America’s largest steelmakers said global overcapacity of the metal is at crisis levels as they urged the U.S. to determine that cheap steel imports are a threat to national security.

The story also reports:

China’s steel exports to the U.S. have declined by more than 67 percent since September 2015 and the U.S. has enough domestic supply to meet its own needs, Yu Gu, first secretary at China’s Ministry of Commerce, said at the hearing.

Similar national security/trade restrictions are in store for aluminum imports, according to the Financial Times: “US launches national security probe into aluminium imports,” (April 27, 2017):

The US has launched a national security investigation into imports of aluminium, warning that its capacity to domestically produce the metal needed for fighter jets and armour plating has collapsed in recent years. 

Daniel Griswold of the Mercatus Center, in “A Matter of Steel Industry Security,” (Reason.com, April 28,2017), counters that the U.S. is still a steel industry power, producing all the military could possibly need:

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips. While it’s true that steel imports have risen to about a quarter of U.S. consumption, domestic steel output remains robust. During the past decade, according to the World Steel Association, annual output at U.S. steel mills has been trending slowly downward but it was still an impressive 78 million tons in 2016. That ranks the United States as the world’s fourth largest steel producer.

Domestic steel production far exceeds any foreseeable need by the U.S. military, which is a relatively small customer for domestic steel. The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. The Pentagon still needs steel for ships, tanks, and warplanes, but the demand has been flat or trending down for years. …

The 2001 report found that the Department of Defense’s annual requirements for steel “comprise less than 0.3 percent of the industry’s output by weight (i.e., 325,000 net tons of finished steel per year).” It also found that the steel that was imported came mostly from a diverse and “safe” list of foreign suppliers, such as Canada, Mexico, and Brazil.

Higher tariffs on imported steel and aluminum will drive prices even higher and further hurt U.S. manufacturers, especially those using imported steel and aluminum in the goods they export to the world.

Lots of domestic and imported steel are used by foreign automakers exporting cars from the U.S.  “Trump Reportedly Wants to Stop Germans From Selling So Many Cars Here, Where They’re Made,” (State.com, May 25, 2017) reports:

In 1994, BMW opened a plant in Spartanburg, South Carolina. Having invested $7.8 billion in the plant, BMW now boasts that it is the company’s largest single facility in the world. And it has spurred investments by a range of suppliers throughout the state. The cars made in Spartanburg there include the EX3 and X5 Sports Activity Vehicle, and the X4 and X6 Sports Activity Coupe. Last year, Spartanburg produced a record 411,171 vehicles, about 34,000 per month. According to BMW, it sells about 26,000 cars per month in the U.S. Now, not all the cars BMW sells in the U.S. are made here. Some are shipped in from overseas. And many of the vehicles made in South Carolina—287,700 last year, or 70 percent—are exported to points around the world.

Mercedes and Volkswagen also have huge U.S. manufacturing operations, as do Japanese and South Korean carmakers:

IAMA , the trade group for Asian automakers in the U.S., said its members last year produced 4.6 million cars between them, equal to 40 percent of all U.S. vehicle production, at some 300 facilities.

As earlier Debate Central posts have noted and many online articles have argued, steel and aluminum imports help U.S. manufacturers. “U.S. Steel Tariffs Create a Double-Edged Sword,” (WSJ, May 31, 2016) as higher steel prices raise costs of US manufacturing:

Duties on steel products from China, Brazil, India, Japan and other countries have contributed to the U.S. benchmark hot-rolled coil index rising more than 60% this year to $615 per ton, after falling 33% last year. In Europe, the benchmark index is up by 34%.

The article quotes U.S. challenged by import restrictions that have raised prices:

Some manufacturers are pushing back. In a letter to the Department of Commerce requesting an exemption, Steelcase Inc. Chief Executive James Keane said a tariff on a special kind of Japanese steel could cost one of his subsidiaries $4 million to $5 million a year.

The subsidiary, Polyvision, makes whiteboards for schools at a plant in Oklahoma, where it employs about 50 people. “If nothing changes, we would have to close our Oklahoma plant,” he wrote. “Schools can’t afford to pay more for these whiteboards, so if we raise prices to our customers they will use lower quality substitutes that are likely not made in the U.S.”

 

 

Policy debaters have a U.S./China policy resolution and Texas UIL has a Spring Lincoln-Douglas topic: RESOLVED: In matters of international trade, globalization ought to be valued above protectionism

Screen Shot 2017-04-11 at 9.47.32 AMLast week I purchased a fire pit for a friend. It was $125 delivered by Amazon…from China. Should I have instead have tried to purchase a similar fire pit made in the U.S.A.? Well, money was an issue. “Fire Pit” wasn’t in my April budget nor in my friend’s budget. We could have dug a hole in the yard and lined it with bricks. But a portable fire pit for the patio seemed preferable.

Amazon kept part of the $124.94 to cover delivery costs, hosting item and transacting the sale. Plus Best Choice Products, a Southern California company (originally Sky Billiards) kept a slice to cover their costs and (hoped for) profits for importing this fire pit from somewhere in China.

Screen Shot 2017-04-11 at 11.23.59 AMWho is hurt when Americans buy portable fire pits or other products from China? People in China purchase iPhones and other name- brand goods from the U.S. Japan, and Europe and buy food from Kentucky Fried Chicken, Starbucks, and McDonalds. “Mapping China’s middle class,” (McKinsey & Co.) reports Chinese middle income consumers will soon expand to three-times the size of American baby-boomers:

China’s new middle class also divides into different generations, the most striking of which we call Generation 2 (G2). It comprised nearly 200 million consumers in 2012 and accounted for 15 percent of urban consumption. In ten years’ time, their share of urban consumer demand should more than double, to 35 percent. By then, G2 consumers will be almost three times as numerous as the baby-boomer population that has been shaping US consumption for years.

Economists over the last two hundred and fifty years have consistently made the case for open international trade and against policies of mercantilism and protectionism. Critics often label economists advocating international trade as pro-business or “corporate shills.”

Adam Smith argued much the opposite in “The Wealth of Nations.” Smith argued the benefits to consumers of international trade are fairly obvious: opportunities to purchase a wider variety of goods, often at lower prices. Smith

Taking a dark view of globalization is this post drawn from a recent “BBC broadcast, a ‘Dinner Party Conversation’ on the question of whether globalisation is dead?” The post offers counter arguments research arguing that international investment, trade, and migration are the reason world poverty has fallen so dramatically:

Moreover, while it is true that poverty has fallen worldwide, the phenomenon cannot be wholly attributed to financial liberalisation or globalisation, but instead to advances in e.g. medical science and scientific development. Indeed, the numbers of those living on less than $1 a day fell most rapidly, not during the period of financial globalisation, but between 1950 and 1970 according to Bourgignon and Morrison (see Our World in Data, on global extreme poverty).

 

This Cato Institute post, “What Globalization Isn’t,” (July 6, 2016) tried to separate out “false song globalism” from the decades of gains from market-based international trade and investment:

The Peterson Institute for International Economics estimates that past gains from U.S. trade and liberalization of investment range from $9,270 to $16,842 per household. Another study found that that “a 1 percent increase in trade raises real income by 0.5 percent.” Other research finds that the trade flowing from globalization has increased consumer purchasing power for middle-income households by 29 percent. As for the poor, they benefit most from the availability of low-cost goods, seeing as much as a 62 percent increase in purchasing power over what they would have in a world without trade.

Looking for downsides, the HBR article asks: “Did Trade with China Make U.S. Manufacturing Less Innovative?” (December 8, 2016). International competition can spur U.S. firms to innovate, but sometimes a cost cliff can be so steep, domestic firms just abandon markets to imports. The HBR article cites new research:

Was increased trade with China really pushing U.S. companies to become more innovative? For manufacturers, at least, they found that the answer was no. In fact, the relationship went in the opposite direction: U.S. manufacturers exposed to competition from Chinese imports became far less innovative. …

The first takeaway from this paper is that more competition, from trade or otherwise, doesn’t necessarily lead to more innovation. While competition can force firms to innovate to fend off rivals, it can also cut profit margins, leaving companies with less to invest in research and development.

So for both policy and Lincoln-Douglas debaters there are arguments, claims, and research on all sides of the globalization debate. It’s worth taking the long view though, international trade has extended for all human history and brought both benefits and costs.  The Economists offers a nice overview: “When did globalisation start?” (September 23, 2013):

Some see globalisation as a good thing. According to Amartya Sen, a Nobel-Prize winning economist, globalisation “has enriched the world scientifically and culturally, and benefited many people economically as well”. …

Others disagree. Globalisation has been attacked by critics of free market economics, like the economists Joseph Stiglitz and Ha-Joon Chang, for perpetuating inequality in the world rather than reducing it.

After a discussion of economic history of global trade, The Economist takes a long view:

But it is clear that globalisation is not simply a process that started in the last two decades or even the last two centuries. It has a history that stretches thousands of years, starting with [Adam] Smith’s primitive hunter-gatherers trading with the next village, and eventually developing into the globally interconnected societies of today. Whether you think globalisation is a “good thing” or not, it appears to be an essential element of the economic history of mankind.

For LD debaters, is there a value in protecting U.S. fire pit manufacturers from global competition? With choices limited by fire pit tariffs, would people purchase a more expensive U.S. versions? Spending more on U.S. fire pits leaves consumers less to spend on other goods and services, and/or less to put aside as savings.

U.S. fire pits could be manufactured less expensively if tariffs on steel from China were lower. “China upset at high US tariffs on steel imports: Punitive tariffs announced after conclusion of anti-dumping and anti-subsidy investigations,” (South China Morning Post, February 4, 2017):

The US Commerce Department announced earlier this week it would impose punitive tariffs ranging from 63.86 per cent to 190.71 per cent on China’s stainless steel products after concluding anti-dumping and anti-subsidy probes.

Also see “U.S. Steelmakers Press Their Luck With Price Increases,” (Wall Street Journal, April 10, 2017):

Domestic steel companies have raised prices by as much as 50% on popular types of steel in recent months. That has boosted their profits, but troubled customers who say they can’t afford the higher cost. Steel users say they are looking for cheaper alternatives from countries unaffected by the tariffs.

Prehistoric people likely brought fire and fire-making tools with them as they traveled the world. Post-historic people trade fire pits instead.
— Greg Rehmke

 

Economists Tyler Cowen & Noah Smith at Bloomberg are “Debating Free Trade and the Populist Backlash” (November 1, 2016 1:16 PM EDT).

For NSDA (and NCFCA) debaters, the benefits, costs, and pushback on U.S./China trade is at the center of economic and diplomatic relations with China. Alan Reynolds in the Wall Street JournalWhat the China Trade Warriors Get Wrong” (Oct. 26, 2016 7:21 p.m. ET) says Trump advisor Peter Navarro is wrong in claiming the “U.S. and Europe in particular got the short end of that stick” after China joined the WTO in 2001:

… China joining the WTO had zero effect on U.S. tariffs against Chinese imports. But it did force China to cut weighted-average tariffs to 19.8% in 1996, down from 32.2% in 1992, according to World Bank estimates. They shrunk further to 14.6% in 2000 and 3.2% by 2014. Yet U.S. tariffs remained unchanged by China’s entry into WTO, staying between 2% and 3% on a weighted average.

Reynolds notes however, that joining the WTO did have a big short-term impact in China:

They found that China’s “aggressive restructuring led to the layoffs of 45 million workers between 1995 and 2002, including 36 million from the state sector.” If China’s entrance to the WTO was about “stealing jobs,” it certainly got off to a bad start. Even in the world’s most populous country, those tens of millions of lost jobs had a big effect.

Did U.S. imports surge after China joined the WTO? Reynolds quotes a recent front-page WSJ story: “Imports from China as a percentage of U.S. economic output doubled within four years of China joining the World Trade Organization in 2001. . . . By last year, imports from China equaled 2.7% of U.S. gross domestic product.” (How the China Shock, Deep and Swift, Spurred the Rise of Trump). But Reynolds says this is misleading and instead U.S. exports to China surged:

Those numbers might appear to suggest U.S. imports surged after 2001, but it was actually Chinese imports that exploded. China’s global imports jumped to 29.2% of GDP in 2005, according to the World Bank, up from 18.3% in 2001. Meantime, U.S. exports of goods to China quickly rose from $19.2 billion in 2001 to $69.7 billion in 2008, according to the Bureau of Economic Analysis. With services added, the U.S. exported $169.2 billion worth of goods and services to China by 2014.

U.S. imports were 15.5% of GDP in 2005 and the main shift was reduced imports from Japan as imports from China rose:

A decade later, U.S. imports were still 15.5% of GDP—the same as 2005. The fact that China’s share of U.S. imports was up and Japan’s down did not mean the U.S. was importing more.

Japan shifted manufacturing to mainland China, building factories and training Chinese workers. So more goods flowed to the U.S. from these factories as imports of goods decreased from Japan.

Since 1990, media and special interest fears of Asian imports shifted from Japanese factories to Chinese factories. Consider this 1990 New York Times story: “Japanese Still Fear Trade Tensions With U.S.” (April 28, 1990):

Indeed, although American exports to Japan have risen in recent years, American imports – particularly automobiles, consumer electronics and machinery – have risen twice as fast.

Japanese officials say they feel lingering bitterness at the way they had to negotiate with the United States under the threat of sanctions, a principal tool of the Super 301 clause.

Japan viewed the Super 301 action as coercive, unilateral and illegal. Mrs. Hills was understood to have been advised by many American negotiators not to use it again this year. 

Back to the present, this New York Times and Seattle Times article looks at overall international trade: “A little-noticed fact about trade: It’s no longer rising” (Originally published October 30, 2016 at 3:47 pm Updated October 30, 2016 at 7:41 pm) Global trade is flat and:

The United States is no exception to the broader trend. The total value of U.S. imports and exports fell more than $200 billion last year. Through the first nine months of 2016, trade fell an additional $470 billion.

For all the complaints about “free trade” by U.S. and E.U. politicians and industry associations, many new trade barriers are being thrown up by U.S. and E.U. governments:

Meanwhile, new barriers are rising. Britain is leaving the European Union. The WTO said in July its members had put in place more than 2,100 new restrictions on trade since 2008.

One example is a new Iron Curtain lobbied for by U.S. steel manufacturers. See “U.S. Imposes 266% Duty on Some Chinese Steel Imports” (March 1, 2016 7:23 p.m. ET), and “U.S. Steel Tariffs Create a Double-Edged Sword” which notes:

New tariffs on imports are boosting steel prices in the U.S., offering a lifeline to beleaguered American steelmakers but raising costs for manufacturers of goods ranging from oil pipes to factory equipment to cars.

So how much of the global slowdown in trade is due to falling construction and commodity prices, and how much is due to new U.S. and E.U. trade restrictions?

Binyamin Appelbaum’s NYT/Seattle Times article also claims:

The benefits of globalization have accrued screen-shot-2016-11-01-at-11-52-12-amdisproportionately to the wealthy, while the costs have fallen on displaced workers, and governments have failed to ease their pain.

Appelbaum claim certainly doesn’t apply to everyday people in China and other East Asian countries. According to the World Bank “benefits of globalization” (international trade and investment) shifted billions out of extreme poverty.

screen-shot-2016-11-01-at-12-19-53-pm

East Asia’s population grew from 1.821 billion in 1990 to 2.279 billion by 2015, yet the percentage of East Asians in extreme poverty (earning less than $1.9 a day) fell from 60.8% of the population in 1990 down to 4.1% by 2015.

Maybe he just wanted to focus instead on the hundreds of East Asian business leaders now billionaires, and the tens of thousands millionaires.

Inequality of income increased as economic and political entrepreneurs built tens of thousands of enterprises from small to large, and some to very, very large. We could research further the income gains Chinese workers enjoyed over the last 25 years vs. gains to Chinese and foreign company founders and stockholders. Still, everyday people saw stunning gains in income and living standards thanks to relatively open trade with the U.S., E.U., and the rest of the world.

East Asian gains are discussed here too: “In 1990, more than 60% of people in East Asia were in extreme poverty. Now only 3.5% are.” (Vox Oct 2, 2016, 4:00pm)

It’s hard to overstate how astonishing and rapid the decline in extreme poverty in the past couple of decades has been. In 1990, more than a third of people on Earth lived on less than $1.90 a day, adjusted for local prices (this is the line the World Bank uses as its main metric). By 2013, barely 10 percent of people did; the rate had been cut by more than two-thirds. That’s one of the biggest and fastest improvements in human well-being in the history of the planet.

Appelbaum is maybe thinking more about how globalization impacts low and middle income American:

During the 1990s, global trade grew more than twice as fast as the economy. Europe united. China became a factory town. Tariffs came down. Transportation costs plummeted. It was the Wal-Mart Era.

Wal-Mart is of course a store where millions of low and middle income Americans have purchased billions of dollars worth of clothes, gadgets, and other goods made by Chinese workers. Did buying these goods hurt or benefit American consumers? Did purchasing less expensive goods from China hurt American manufacturers, “hollowing out” America’s middle class? (An earlier post noted the 40% gain in U.S. manufacturing output since 2000, and research showing most job losses were from automation.)

Well, this is an overlong post already. But, in addition to the Cowen/Smith above, here are a additional responses to populist “Death by China” claims. Bryan Riley of the Heritage Foundation’s argues “Trade With China Is a Net Plus for Americans” (August 31, 2016). This Cato Institute CommentaryThe Truth about Trade” (April 11, 2016) adds more support for the gains from trade.

For a more in-depth discussion, see Dartmouth economist Doug Irwin’s “The Truth About Trade:What Critics Get Wrong About the Global Economy” in the July/August issue of Foreign Affairs,

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