Tag: world trade

Yet More U.S. Trade Policy Incoherence

In hailing this week’s ruling by a World Trade Organization dispute settlement panel that certain Chinese government restrictions on raw material exports violate China’s WTO commitments, U.S. Trade Representative Ron Kirk made the point that such restrictions hurt U.S. manufacturers who rely on those imported raw materials.

Today’s panel report represents a significant victory for manufacturers and workers in the United States and the rest of the world. The panel’s findings are also an important confirmation of fundamental principles underlying the global trading system. All WTO Members – whether developed or developing – need non-discriminatory access to raw material supplies in order to grow and thrive.

And, simultaneously, by artificially increasing domestic supply, the same export restrictions advantage Chinese manufacturing consumers of those materials.

China’s extensive use of export restraints for protectionist economic gain is deeply troubling. China’s policies provide substantial competitive advantages for downstream Chinese industries at the expense of non-Chinese users of these materials.

And here’s how the USTR website described the central issues of the case:

China maintains a number of measures that restrain exports of raw material inputs for which it is the top, or near top, world producer. These measures skew the playing field against the United States and other countries by creating substantial competitive benefits for downstream Chinese producers that use the inputs in the production and export of numerous processed steel, aluminum and chemical products and a wide range of further processed products…These raw material inputs are used to make many processed products in a number of primary manufacturing industries, including steel, aluminum and various chemical industries. These products, in turn become essential components in even more numerous downstream products.

I agree.

But what you won’t find in the USTR’s statements is any acknowledgement that the U.S. government, in defiance of Ambassador Kirk’s logic, maintains import restrictions on three of the nine raw materials at issue in the China WTO case. That’s right! While arguing correctly that Chinese restrictions on exports of magnesium, silicon metal, and coke raise production costs and subsequently reduce U.S. manufacturing competitiveness, the U.S. government maintains antidumping restrictions on the same inputs, which raises U.S. production costs and reduces U.S. manufacturing competitiveness. (See pages 14-17 of this new Cato paper to learn what happened to certain U.S. industrial consumers of these raw materials)

How can such dissonance persist, you ask? Under the U.S. antidumping law, manufacturing consumers of subject imports have no legal standing to participate in the proceedings. In fact, the U.S. administering agencies are forbidden by statute from even considering the impact of antidumping duties on the downstream, consuming industries. Nor is an assessment of the costs of prospective antidumping restrictions on the broader economy permitted to carry any weight under the statute.

Instead, in the present case, those producers hurt by our own import restrictions had to take the circuitous route of enlisting the support of the USTR to pursue a WTO case to secure – what will eventually be – only a half-a-loaf solution. Even if and when China relents with respect to its export restrictions, the U.S. antidumping restrictions on imported raw materials will persist because the law effectively insulates the patrons of antidumping measures from competition.

It should be embarrassing to the administration that it rigorously pursues a WTO case to end an economic injustice committed by another country that we gleefully inflict upon ourselves. We are committing economic self-flagellation by ignoring antidumping reform in this country, where 80 percent of all antidumping measures in place restrict crucial manufacturing inputs. And it’s not like President Obama doesn’t understand the relationship between manufacturing competitiveness and access to manufacturing inputs. Here’s what the president said less than one year ago, when he signed into law a tariff liberalization bill:

The Manufacturing Enhancement Act of 2010 will create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery. And here’s how it works. To make their products, manufacturers—some of whom are represented here today—often have to import certain materials from other countries and pay tariffs on those materials. This legislation will reduce or eliminate some of those tariffs, which will significantly lower costs for American companies across the manufacturing landscape—from cars to chemicals; medical devices to sporting goods. And that will boost output, support good jobs here at home, and lower prices for American consumers.

But, then, at some point, that logic no longer resonates with this administration.

Antidumping reform is an essential ingredient of U.S. manufacturing competitiveness. Anyone inclined to celebrate the U.S. WTO “victory” in the Chinese export restrictions case should understand the rest of that story.

A History Lesson for Trade Bashers

Candidates from both parties are trying to win votes this fall by criticizing free trade and trade agreements. As John Steele Gordon points out in a wonderful historical essay, “The Great Mistake,” in the latest Barron’s Weekly:

We’ve been down this unfortunate road before. Recall the Smoot-Hawley tariff, named after its chief congressional sponsors, Sen. Reed Smoot of Utah and Rep. Willis Hawley of Oregon, both Republicans and both chairmen of the committees in charge of taxes.

Introduced in 1929 as the country was tipping into recession, their bill did not have a happy ending. It imposed steep tariff increases on agricultural as well as manufactured goods, raising overall U.S. tariffs to their highest levels in decades. When President Hoover reluctantly signed the bill in June 1930:

The stock market, once again a leading indicator, immediately turned south. It wouldn’t stop falling for two years—the Dow Jones Industrial Average gave up all its gains since its inception in 1896.

Other countries made good on their threats of retaliatory tariffs, and world trade collapsed. American exports had been $5.24 billion in 1929. Three years later U.S. exports were worth only $1.16 billion, a 78% decline. The Smoot-Hawley tariff would prove to be one of the major government mistakes that converted an ordinary recession into the calamity of the Great Depression.

The protectionist bill was bad politics as well as bad economics. Hoover, Hawley, and Smoot were all swept out of office in 1932.