Secretary Pritzker Forgets About Steel Users

Commerce Secretary Penny Pritzker authored an Aug. 12, 2016, opinion piece in the on-line version of the Cleveland Plain Dealer that emphasizes her desire to protect the steel industry from import competition. She states, “We take seriously our ongoing responsibility to combat unfair trade that threatens the viability of this industry and the good people in our steel-making communities.” Pritzker notes that at the Department of Commerce, “Currently, we are enforcing 161 anti-dumping (AD) and countervailing duty (CVD) cases on steel products to combat the countries, like China, that are trying to dump steel on our market.”

There is no doubt that steel producers are being affected by global steel overcapacity, as I have noted here, here, and here. Much of the overcapacity is due to China’s use of various policy measures to stimulate steel industry expansion. In 1995, China produced 95 million metric tons (MMT) of steel, equal to the amount produced in the United States. Twenty years later in 2015, Chinese production had risen more than eight-fold to 803 MMT. U.S. production decreased 17 percent over that same period, amounting to 79 MMT in 2015. Global production more than doubled, rising from 753 MMT in 1995 to over 1600 MMT today. The boost in China’s output exceeded 700 MMT and accounted for more than 80 percent of the increase for the entire world. It is reasonable to conclude that China’s actions have been the most important factor in glutting the global steel market.

A world marketplace so strongly influenced by government policies can hardly be described as fair. The effects of the steel surplus are felt around the globe, including in the United States. U.S. steel producers have been dealing with relatively low-priced imports from a number of countries. They have responded by filing many AD/CVD petitions, which helps to explain Sec. Pritzker’s statement about her role in “enforcing 161 AD/CVD cases.” Those measures restrict the importation of a variety of steel products from numerous countries. They have succeeded in making the United States a somewhat high-priced island in a world awash with low-priced steel. The AD/CVD restrictions apparently haven’t been sufficient, though, to ensure the profitability of American steel producers. United States Steel Corporation reported a loss of $1.5 billion in 2015.

However, what Sec. Pritzker ignores is that efforts to restrict imports to the benefit of steel producers come at the expense of steel users. U.S. manufacturing firms that use steel as an input have to pay prices that are higher than those paid by competitors located in other countries. This makes steel-consuming manufacturers vulnerable to losing sales to lower-priced imported goods that compete with them in the U.S. marketplace. Economists long have understood that imposing trade restrictions lowers the economic welfare of the country that puts them in place. Since the steel-consuming sector is so much larger than the steel-producing sector, the welfare losses for the overall U.S. economy are magnified.

The Bureau of Economic Analysis (BEA) is part of Sec. Pritzker’s Department of Commerce. BEA data indicate that value added by “primary metal manufacturing” amounted to $59.7 billion in 2014. (Note: Primary metal manufacturing [NAICS 331] includes nonferrous metals, such as copper, aluminum, magnesium, lead, tin, silver, and gold, so is much broader than the steel industry.)  Downstream manufacturers that utilize steel as an input generate value added of $990 billion, more than 16 times larger than primary metal industries. The disparity in employment also is more than 16 times greater. Primary metal manufacturing employed 400,000 people in 2014. Downstream manufacturers employed 6.5 million. Employment by U.S. steel producers is somewhere in the range of 100,000 – 150,000.

The point is not that the U.S. steel industry is small and insignificant, because clearly it is not. Rather, the point is that the problems of the steel industry need to be kept in perspective. The bottom line is that it would be a poor policy choice to attempt to protect steel producers in ways that do much greater harm to steel users. Those who wish to provide policy support for the steel industry should look for approaches that do not involve restricting trade.

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Trump Has No Real Plan to Defeat ISIS

The big news from Donald Trump counterterrorism speech Monday is his proposal for an “ideological litmus test” to screen Muslim immigrants, which comes in lieu of his prior call to ban them outright. The focus here is the rest of Trump’s speech, which consists largely of shaky facts meant to exaggerate the terrorist threat to the United States, dubious arguments meant to blame President Obama and Hillary Clinton for that threat, self-congratulation for having taken smarter positions, which requires some invention, plus a touch of his special innuendo.

What’s lacking, unsurprisingly, are new policy proposals. After all his criticism of current U.S. counterterrorism policy, Trump offers a vague rehash of it, plus a desire to be tougher on Muslim immigrants.

The speech begins with a recitation of recent terrorism meant to convey a sense of rising menace, with the Islamic State (ISIS) leading the way. That doesn’t require dishonesty. One can exaggerate danger by selecting scary facts and failing to put them in context. For example, Trump doesn’t say that ISIS has been losing territory, which costs it cachet and recruits. Unsurprisingly, he mentions neither the miniscule odds that an American will be killed by terrorists nor the absence of a major attack organized by ISIS in the United States. The San Bernardino and Orlando shooters cited ISIS as an inspiration but, in its absence, might have acted in the name Qaeda or some other group.

Still, Trump can’t help molding the facts to his story. First, he claims that “this summer, there has been an ISIS attack launched outside the war zones of the Middle East every 84 hours.” That figure comes from a July 31 CNN article, which itself repeats a contractor’s non-public data covering a period—June 8 until late July—when attacks were unusually frequent. The count seems to include attacks, like the Orlando massacre, where the attacker had solely ideological links to ISIS. Using that broad definition and public lists of ISIS attacks for the period from June 8 until Trump spoke, attacks have come every 136 hours. Counting Orlando, the United States has gone 1560 hours without an ISIS attack.

Second, Trump contends that ISIS is “fully operational in 18 countries with aspiring branches in 6 more.” Trump doesn’t mention that he is directly quoting an NBC news report on a leaked White House briefing from the National Counterterrorism Center. The story doesn’t define “fully operational,” but it can’t mean much. To get 18 nations, one has to count just about every terrorist entity that has endorsed ISIS, though the main outfit in Syria only slightly controls a few of them. Mostly they’re splinter jihadist groups that embraced ISIS’s brand once it eclipsed al Qaeda’s.

Third, Trump argues that a new Congressional report shows that “the administration has downplayed the growth of ISIS, with 40 percent of analysts saying they had experienced efforts to manipulate their findings.” As Politico notes, the report was about analysts at Central Command, not all U.S. intelligence analysts, as Trump implies. Nor do we know that the pressure came from higher administration officials, rather than Centcom leaders, or that their take was entirely misguided, given ISIS’s recent decline.

A Twitter Conversation with Trump’s Trade Adviser

Recently, Donald Trump announced a team of economic advisers. One of them is Dan DiMicco of Nucor Steel. When DiMicco offered up a tweet about trade, I thought this might be an opportunity to engage him and try to learn more about Trump’s trade views, which are protectionist in tone but lack much detail. Here’s how the exchange went, minus a couple tweets that I left out to keep this post shorter.  (Spoiler: He didn’t seem to know much about the substance of trade law!) 

In response to his initial tweet, I asked for some specifics on how Trump’s trade deals would be different from existing trade deals: 

He referred me to the “7 point plan” Trump had previously announced:

So, I picked one of the points – Trump’s suggestion to renegotiate NAFTA – and followed up with a request for details:

Thai Military Junta Rigs Constitutional Referendum, Preserves Dictatorship

The Thai people voted on the latest constitution pushed by the reigning military junta. By banning any opposition, General/Prime Minister Prayuth Chan-ocha won approval to continue his dictatorship from behind the scenes.

For decades military coups were frequent and the court, along with the military, bureaucracy, and business, long dominated democratic politics. Well-connected elites prospered while the rural poor languished, seemingly forgotten by their own government.

That came to a dramatic end in 2001 when flamboyant business mogul Shinawatra Thaksin (the latter his given name, by which he is known), ran a populist campaign and won the support of the long-suffering rural poor. The usual governing elites refused to accept their loss of control and an extended, often violent political struggle ensued, culminating in coups in 2006 and 2010.

Results from the 2016 Post-Libertarianism v. Conservatism Debate Survey

The Cato Institute and Heritage Foundation recently co-hosted a debate in which interns from both organizations debated whether conservatism or libertarianism is the better philosophy. At the conclusion of the debate, the Cato Institute conducted a post-debate survey of attendees finding important similarities between millennial conservative and libertarian attendees on skepticism toward government economic intervention and business regulation, but also striking differences in attitudes toward immigration, LGBT issues, national security, privacy, foreign policy, and perceptions of bias in the justice system.

Full LvCDebate Attendee Survey results found here.

What Are Their Priority Issues? 

The survey asked conservative and libertarian attendees to rate on a scale of 1 to 5 how concerned they were about nineteen different issues.  

Note: This chart displays the mean level of concern (on a scale of 1-5) across 19 different issues for both conservative and libertarian millennials who attended the Libertarianism v. Conservatism intern debate at the Cato Institute. Moving from the inner to the outer circles indicates an increasing level of concern for each respective issue. Results from statistical tests are shown which indicate if conservatives and libertarians significantly differed in their concern for the issue *** p<.001 ** p < .01 * p < .05.

Note: This chart displays the mean level of concern (on a scale of 1-5) across 19 different issues for both conservative and libertarian millennials who attended the Libertarianism v. Conservatism intern debate at the Cato Institute. Moving from the inner to the outer circles indicates an increasing level of concern for each respective issue. Results from statistical tests are shown which indicate if conservatives and libertarians significantly differed in their concern for the issue *** p<.001 ** p < .01 * p < .05.

Despite a multitude of differences, millennial libertarian and conservative attendees share almost the same top five political priorities: 

  • Size of government
  • Government spending and debt
  • Taxes
  • Economy/jobs  

The Attack on Chile’s Private Pension System

Last month, a scandal erupted in Chile. The media discovered that the former director of the Chilean gendarmerie, the country’s penitentiary service, was receiving a pension of about $8,000 per month. Chile privatized its pension system in 1980. Instead of sending retirement money to the government, workers there put their money in private accounts that invest and accumulate savings to be used in old age. When Chile approved the reform, the military and some law enforcement agencies (such as the gendarmerie) remained in the old public system.

Although the abuse occurred within the old public pension system, which benefits a minority of Chileans, and the beneficiary in this case was a socialist political activist and ex-wife of the head of the lower house of Congress (also a socialist), the episode was used to attack the private system to which almost every Chilean worker belongs. The left declared that the private accounts managed by the private pension fund companies (known by their Spanish acronym AFP) provide low pensions, something that incensed many Chileans who saw that the AFPs do not pay the same level of pension evident in this particular case.

Before long, protests involving hundreds of thousands of people took place throughout the country under the slogan “No + AFP,” and demanded a return to the old pension system. Last week, President Michelle Bachelet announced a series of reforms that would give the state a larger role in peoples’ retirement.

Japan’s Slow-Motion Fiscal and Monetary Suicide

Remember Bill Murray’s Groundhog Day, the 1993 comedy classic about a weatherman who experiences the same day over and over again?

Well, the same thing is happening in Japan. But instead of a person waking up and reliving the same day, we get politicians pursuing the same failed Keynesian stimulus policies over and over again.

The entire country has become a parody of Keynesian economics. Yet the politicians make Obama seem like a fiscal conservative by comparison. They keep doubling down on the same approach, regardless of all previous failures.

The Wall Street Journal reports on the details of the latest Keynesian binge.

Japan’s cabinet approved a government stimulus package that includes ¥7.5 trillion ($73 billion) in new spending, in the latest effort by Prime Minister Shinzo Abe to jump-start the nation’s sluggish economy. The spending program, which has a total value of ¥28 trillion over several years, represents…an attempt to breathe new life into the Japanese economy… The government will pump money into infrastructure projects… The government will provide cash handouts of ¥15,000, or about $147, each to 22 million low-income people… Other items in the package included interest-free loans for infrastructure projects…and new hotels for foreign tourists.

As already noted, this is just the latest in a long line of failed stimulus schemes.

The WSJ story includes this chart showing what’s happened just since 2008.