Daniel R. Pearson
President Trump has asked the Department of Commerce to conduct a seldom-used Section 232 investigation to determine whether steel imports are harming U.S. national security. And although statute allows the study to be conducted over 270 days, Secretary Wilbur Ross’s stated intention is to complete the report by the end of June. The president then would have 90 days in which to decide whether and how to “adjust the imports.”
How would those adjustments look? In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy.
Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing sector.
Five points are particularly relevant:
First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications.
Most steel used by the military comes from domestic suppliers, such as United States Steel Corp., AK Steel Holding Corp. and Nucor Corp. or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills — no import controls are required.
Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input.
Using national security as justification isn’t credible, and retaliation would hit export-competitive industries.
Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more. Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% of U.S. gross domestic product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion - 29 times more - or 5.8% of GDP.
Any government action to drive steel prices even higher by further restricting imports will hurt steel-consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas.
Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted. The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board.
Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs. Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped.
The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker.
But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel.
Secretary Ross should resist the temptation to use the Section 232 report to recommend more protection for the steel market. Instead, he should advocate that President Trump seek removal of all U.S. import restrictions on steel. This would build a firm foundation for a vibrant and growing manufacturing economy that is essential to America’s national security.Dan Pearson is a senior fellow at the Cato Institute, and served as chairman of the U.S. International Trade Commission during the George W. Bush Administration.
Last week, President Donald Trump announced his outrage at Cuba’s poor human rights record. On his recent Mideast trip the president did not even mention the issue in totalitarian Saudi Arabia. But of Cuba, he declared: “We will not be silent in the face of Communist oppression any longer.” A cynic might observe that more Cuban-Americans than Saudi-Americans voted for him last November.
Cuba has been on Washington’s “bad” list since Fidel Castro’s revolutionaries took power n 1959. The island would have been of little geopolitical importance had Castro not turned to the Soviet Union for support in the Cold War. Washington feared a hostile base so near and targeted the regime.
Instead of disappearing into obscurity as his impoverished nation floundered, Castro gained international acclaim by posing as the heroic opponent of Yanqui imperialism. His government relied on Soviet subsidies for sustenance, but survived, with difficulty, even after the USSR dissolved. Castro reluctantly adopted modest economic reforms to attract more foreign cash and spur more domestic enterprise.
Returning to yesterday’s failed policies of isolation will not free the Cuban people.
Cuban Communism’s record is dismal. When I visited (legally) a dozen years ago, I found crumbling infrastructure, homes which hadn’t seen paint in decades, cars held together with wire and tape, and seemingly half the population touting cigars stolen from state factories. But the elite lived well: in fine homes behind high walls, with luxury cars in driveways, serving lobster and other fine foods to guests, and deploying guard dogs for security.
The U.S. economic embargo failed to overly disturb Castro & Co. Europeans invested in Cuba; I stayed at a Dutch hotel. Hard currency stores were full of foreign goods. Fidel Castro remained in charge, along with brother Raul and other aging revolutionaries. None of them had to produce a ration book to eat.
Dissidents complained that the regime covered up its economic failures by blaming the embargo. When I visited Elizardo Sanchez Santa Cruz, who had been imprisoned by Castro, he told me that the “sanctions policy gives the government a good alibi to justify the failure of the totalitarian model in Cuba.”
In the face of this reality, American policy was brain dead, determined by a diminishing number of hardline Cuban-Americans who opposed any softening of sanctions. U.S. policy illustrated the definition of insanity: doing more of the same while expecting a different result. Younger Cuban-Americans, who spent their entire lives in the U.S. and had few, if any, memories of Cuba, increasingly questioned the embargo. However, rabid proponents of the half-century-old restrictions still delivered a sizeable vote in Florida, one of the nation’s biggest pools of electoral votes.
President Barack Obama did little about the issue until shortly before leaving office. Then he established diplomatic relations with Havana and relaxed restrictions on travel and business, though he lacked legal authority to lift the embargo.
In his typical fact-free approach, President Trump last week criticized “the last administration’s completely one-sided deal with Cuba.” The U.S. had diplomatic relations with the Soviet Union, Eastern European nations, and assorted Third World dictatorships throughout the Cold War. An embassy is a communication channel, not a political endorsement.
Moreover, trade and investment benefit both sides economically. Commerce with freer societies also tends to destabilize authoritarian regimes, encouraging economic and political liberalization. Trade links and economic growth helped spur democratization in such nations as Mexico, South Korea, and Taiwan.
Of course, economic liberalization does not guarantee political transformation. The (Raúl) Castro regime is aware of the risks and intensified repression of political dissidents and religious believers. But communism’s appeal is dwindling.
Columbia University’s Christopher Sabatini argued that “The dam has broken. When I was in Cuba last year, the difference in people’s willingness to speak out, the growing prosperity of a new class of independent entrepreneurs and—as the Committee to Protect Journalists has also reported—the growth of new space for independent, investigative online journalism was undeniable.” Over time, state controls will further erode. Greater involvement by ethnic Cubans from Florida will increasingly challenge a regime that has failed to serve its people.
At least, such change seemed likely before the president proclaimed he was “canceling” Obama’s Cuban policy. President Trump announced limits on tourism and banned business with companies linked to the island’s military or intelligence services. The first restricts individual travel by normal folks. The second puts much of the Cuban economy off-limits for U.S. involvement.
Alas, returning to yesterday’s failed policies of isolation will not free the Cuban people. The Castro government worries most about regime preservation. The elite will not end repression to satisfy Washington, even if doing so might bring in a few more tourist dollars. But President Trump’s retreat will hurt the island’s growing private sector. When informed of the Trump administration’s plans, a waitress complained to the Washington Post: “We’re the ones who are going to lose.”
There will be fewer American tourists and the ones who still come will be pushed toward government-approved tours and guides, going where the Castro regime wants them to. There will be fewer U.S. enterprises and less contact between Americans and Cubans. Citizens in the “land of the free” will lack travel opportunities available to Europeans, South Americans, and most everyone else in the world. Trump’s policy will end up strengthening Castro’s communist dictatorship. The system will stagger on a few years longer, despite the embargo.
The presidential campaign is over. President Trump should do what is best for both the American and Cuban people, and end economic restrictions on the island. Freedom eventually will come to Cuba. Flooding the island with foreign people and money would make that day arrive sooner.Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.