Huge tariff on Chinese steel hits the spot
Chinese steel companies have used free trade agreements to flood the world with cheap product, hurting European and U.S. mills. But rather than scrap the deal, the Commerce Department imposed punitive 522 percent tariffs.
That’s how free trade is supposed to work. Countries agree to fair rules that apply to everyone with the understanding that if they are broken, harsh punishment will follow. In this case, the Obama administration is imposing a 266 percent anti-dumping duty and a 256 percent anti-subsidy duty.
The Chinese government spent billions investing in steelmaking capacity as the nation’s export economy grew. The Communist Party wanted China to build new cities and develop an auto industry, both of which require
a lot of steel.
Chinese steelmakers, though, added too much capacity, and the government wants to shift the economy toward domestic consumer goods and services. The central bank is also dealing with enormous industrial debt while trying to slow economic growth without triggering a recession.
Rather than shut down factories and cause unemployment, Chinese steelmakers have shipped excess product overseas for less than it cost to produce. That’s called dumping, and every free trade agreement has rules against it. Trade deals also prohibit governments from using taxpayer money to subsidize industries, which the Chinese government does.
Needless to say, the Chinese are angry over the Obama administration’s decision. The authoritarian government doesn’t appreciate anyone interfering with its plans. But the U.S. and Europe must enforce the deals that China signed and require compliance. Otherwise, the deals aren’t worth the paper they are printed on.
Republican presidential candidate Donald Trump has said he would scrap almost all of the current trade deals and renegotiate them. Hillary Clinton, the Democratic front-runner, has turned her back on her husband’s biggest achievement, the highly successful North American Free Trade Agreement.
Neither candidate wants to acknowledge that trade deals expand competition, and those who can’t keep up will lose. That’s how the free market works. A small but vocal minority of Americans have suffered when foreign companies have turned out to do a better job, but rather than place the blame where it belongs, Trump and Clinton pander to that minority.
That makes them no better than the Chinese government trying to protect its steel industry. Nationalism in economics only results in two things, higher prices for consumers and less innovation.
Rather than scrap free trade deals, let’s make sure they are fair — and enforced in a fair way. Competition is good, and the more companies that can enter the market, the better.