Is US socialist capitalism or protectionism

The US punitive tariffs, the problem of overcapacities in the steel sector and the thrust of China

The US is concerned with a fundamental stipulation: the rising emerging market should accept the previous supremacy or hegemonic position of the US. China has so far shown itself ready to make concessions - but punitive tariffs on steel and aluminum are only the prelude to a more aggressive protectionist policy by the USA.

US President Donald Trump had already imposed punitive tariffs of 25 percent on steel and 10 percent on aluminum in March 2018. These tariffs were introduced after the US Department of Commerce concluded that foreign imports were threatening the domestic industrial base and, by extension, US national security.

Washington initially exempted Argentina, Australia, Brazil, Canada, Mexico, South Korea and the EU from tariffs. Canada and Mexico were given the prospect of permanent exemption if negotiations on the North American Free Trade Agreement (NAFTA) made progress. The EU was also negotiating a new regulation. Obviously, the US is not satisfied with the offers made so far and is now also punishing Canada, Mexico and the EU.

While South Korea, Australia, Argentina and Brazil agreed to limit their supply of steel and aluminum as the price for a permanent exemption from American tariffs, the EU was not ready to do so. Instead, the Europeans had offered to negotiate trade issues of mutual interest if the US granted them a permanent and unconditional exemption from tariffs. This, in turn, was not acceptable to the US.

The problem of overcapacity in the steel sector

The EU is convinced that the American tariffs are unjustified and contrary to the rules of the World Trade Organization (WTO). EU Commission President Jean-Claude Juncker said it was pure protectionism. Over the past few months, attempts have been made at all levels to tackle the problem of overcapacities in the steel sector together with the USA. The EU is not the cause of this problem, it is also suffering from it.

The EU wants to take countermeasures, but at the same time continue to negotiate, and has taken legal action against the USA at the WTO. From the point of view of Europeans, the WTO rules allow the EU to levy additional tariffs on a number of products from the USA to compensate for the damage. In addition, the EU wants to take protective measures in the form of quotas or tariffs if massive amounts of steel or aluminum are "diverted" into the EU due to the closure of the American market.

Canada's government also called America's decision completely unacceptable. It announced that it would impose taxes or similar countermeasures on imports from the United States of steel, aluminum and other products with a commercial value of up to 16.6 billion Canadian dollars. 16.6 billion Canadian dollars (about 13 billion US dollars) is the value of exports affected by American tariffs.

Characterized by overproduction

The Mexican government also announced that it would impose new, equivalent tariffs on American products such as steel, lamps, pork, fruits and various types of cheese. The countermeasures would remain in place until the US lifts its tariffs on Mexican steel and aluminum supplies, it said. Mexico regards the American tariffs as neither appropriate nor justified, and at the same time is willing to talk.

The global steel market in particular is characterized by overproduction. Thanks to the good global economy, steel prices have already risen sharply again internationally since the end of 2015, when they had reached a low point. There are many indications that things will continue to improve in the near future. The reason for this is not only due to the growing protectionist behavior. There is also the threat of revenge for the fact that, despite the increased demand, little has been invested in production capacities since 2012. In view of the heightened uncertainty in the industry, steel companies will probably hold back.

The EU itself has long imposed punitive tariffs on Chinese imports of reinforcing steel for concrete construction. The EU Commission started the dumping price investigation in April 2016 at the request of the Association of the European Iron and Steel Industry Eurofer. It is also continuing its investigation into allegations of dumping prices among Chinese steelmakers. The provisional punitive tariffs are between 9.2 percent and 13 percent for imports of structural steel with high fatigue resistance (HFP).

Will only make for losers

It is clearly foreseeable that the rampant protectionism among buyers of this key material, steel, will only cause losers. In the US, steel prices have skyrocketed. A ton of hot-rolled steel costs around 950 US dollars, a good 50 percent more than in China, Japan or Germany. The terrain of steel is massively plowed up by political tariffs and a compromise is likely to be hopeless, especially if the economic situation will soon also clearly show overproduction.

Trump and his Trade Secretary Ross have cited national security as a justification for imposing punitive tariffs on steel and aluminum. With this justification, the US government threatens to impose punitive tariffs of 25 percent on the import of cars and auto parts. The American government has launched a review to investigate this issue. The procedure is a declaration of war against the WTO, and the entire world trading system can be overridden with the argument of national security.

The decisions of the US president are aimed primarily at China. In addition to steel and aluminum tariffs, the United States has announced the introduction of punitive tariffs on hundreds of Chinese products to force Beijing to change its industrial policy and discrimination against foreign companies. The US accuses China of unfair trade practices such as the compulsion to transfer technology.

The US is concerned with a fundamental stipulation: the rising emerging market should accept the previous supremacy or hegemonic position of the US. China has so far shown itself ready to make concessions. It is questionable which concessions the USA is satisfied with or whether they want to enter into a compromise with China at all. Punitive tariffs on steel and aluminum are in fact only the prelude to a more aggressive protectionist policy by the USA.

Joachim Bischoff is co-editor of the magazine Ā»SozialismusĀ«, the text first appeared on their website.Photo by Michigan Sea Grant / United States Environmental Protection Agency / Public Domain