Import Restrictions Disrupt Economic Progress From Trade

Import restrictions on steel and aluminum imports — tariffs and quotas — are about far more than steel and aluminum. Implementing tariffs on top U.S. allies and trading partners — 25 percent for steel and 10 percent on aluminum — represents a structural break from the path of global progress. It also places the U.S. economy at risk.

There’s no question that global economic well-being impacts American families. Data from 1970 to 2017 show that U.S. economic growth is correlated with that of the world. As other national economies around the world progress, they buy more U.S. exports and Treasury securities, creating a virtuous growth cycle. This both benefits the United States and generates rising world income and human progress, enabling a greater share of spending and investment to be directed to peaceful and productive means.

The new U.S. tariffs on steel and aluminum will not in and of themselves unravel the benefits of global trade, but they certainly won’t help. And they set a worrisome precedent based on highly questionable rationale — namely, the Commerce Department’s climate that tariffs are necessary for national security. In 2017, the U.S. relied on imports to satisfy just 33 percent of its steel demand, with half of the imports coming from Canada, Mexico, Brazil, and South Korea. More than one quarter of steel imports have come from our neighbors and allies Canada and Mexico — a fact that further reinforces the security and economic value of NAFTA.

For industries like natural gas and oil, which rely critically on specialty steel products that are not manufactured in the United States, such delays and increased costs will jeopardize jobs and cost millions of dollars every day. Some nations have negotiated with the Trump administration to implement quotas as an alternative to tariffs — creating a scenario under which supply may not be available from certain trading partners at any cost.

Specifically, the complex quota system resets quarterly for each country and is structured with sub-quotas on individual product groups determined based on historical shares of U.S. imports. When a quota has been reached, ships carrying that product to the United States may be turned around. Alternatively, the product could be destroyed, or it may be placed into storage until the quota is no longer binding. If the quantity of steel that already is in storage is substantial, it could take months, quarters, or possibly even years to import products that are needed for major projects.

Consider, for example, Oil Country Tubular Goods (OCTG). As of mid-June, the quotas for the second quarter of 2018 were 100 percent filled for Brazil, 86 percent filled for South Korea, and 51 percent filled for Argentina. However, Argentina is subject to quotas of zero for about 40 groups of steel, and Brazil similarly has zero quotas for eight groups. A zero quota is essentially a ban on new steel imports for any country that has not been exporting that product to the U.S. over the past five years.

Since these import restrictions have been applied unevenly across countries, they also have created a bureaucratic quagmire. Potential exemptions for specific products imported by individual companies remain mired in a manual review process that is so burdensome as to be ineffectual. In the nearly three months since Commerce issued its decision, the Commerce website has posted over 8,000 exemption requests, none of which has yet been approved and criteria for which remain opaque. Some sources have placed the backlog of requests as high as 19,000.

For nearly two decades, proposals like the Section 232 tariffs and quotas have easily been shot down and recognized for what they are: a rigged lottery. Tariffs are expensive means to save a relatively small number of U.S. jobs in the steel and aluminum sectors at the likely expense of a far greater number of jobs in the manufacturing sector. Energy and manufacturing depend on steel and aluminum inputs that will now be more expensive, which potentially undermines the U.S. energy renaissance that has significantly bolstered job growth, national security, and family budgets.

With the U.S. unemployment rate at its lowest level in nearly 20 years, there is not much slack in the labor force. Between rising import costs, higher domestic production costs, and a multiplier effect associated with frictions through the entire economy, these policies are likely to raise prices for consumers.

It is time — once again — to call out protectionist policies for what they are and change course — before U.S. price inflation undermines household budgets, supply bottlenecks stymie major industry projects, and policy contagion affects global trade in ways that are harmful to economic and human progress.

R. Dean Foreman, Ph.D., is the American Petroleum Institute’s Chief Economist.