Thread: trade, steel & illegals:2nd paragraph from bottom

Corrosion-resistant Steel: A Primer on the Incoherence of U.S. Trade Policy
Alan Tonelson
Sunday, October 15, 2006 http://www.americaneconomicalert.com/vi ... od_ID=2580

The new donnybrook between steel and auto companies over U.S. tariffs on dumped and subsidized steel shows that neither industry is anywhere close to solving its trade policy problems, and that both urgently need to adopt fundamentally new, more comprehensive approaches.

The two sectors are fighting over the U.S. International Trade Commission’s pending decision to revoke tariffs first placed on corrosion-resistant flat steel products 13 years ago. Thanks to the agreement negotiated by the United States in 1994 that created the World Trade Organization, America’s democratically elected government can no longer determine how long to maintain such tariffs. They must be removed in five years unless domestic producers can show that such revocation will likely lead U.S. trade partners to resume the predatory practices that created the problem in the first place.

The auto industry is furthest behind the trade policy eight-ball, continuing a record of incoherence, short-sightedness, and timidity that stretches back decades. This sector strongly supports eliminating the tariffs, and for a very simple reason. Corrosion-resistant steel is a big part of motor vehicles, and the tariffs have raised the price of steel for any company making vehicles – and any other steel-using product – in the United States.

The auto sector’s position, however, stops being simple in a hurry. Most important, the industry’s own poor decisions have badly blurred the national identities of auto companies. The result, however, has not been the free-market, efficiency-drive utopia promised by globalization cheerleaders, but a situation that has hopelessly confused U.S. policymakers, and blinded U.S.-owned firms to their own best interests.

Mistake Number One along these lines by the then-Big Three of GM, Ford, and Chrysler was blind faith in the North American Free Trade Agreement and other recent outsourcing-focused trade deals as their only hope of offsetting the advantages enjoyed by their Japanese and European competitors, who were free to export to the United States from heavily protected home markets. As made clear, however, by the continuing flood of both imported vehicles and parts from not only Germany and Japan, but South Korea, and the stagnation of U.S. automotive exports (especially outside North America), NAFTA’s promise was mainly hype.

Just as important, by sourcing so many parts and vehicles from Canada and Mexico, the Big Three have weakened their claim to be truly American companies when they have decided to oppose their German and especially Japanese counterparts on trade policy issues. Complicating this challenge further, of course, has been the rapid growth of “transplant” production by European and Asian automakers in the United States, which strengthens their claims to be truly domestic.

Mistake Number Two was treating DaimlerChrysler as a U.S.-owned company with interests closely aligned with GM’s and Ford’s. Yes, Daimler-Benz inherited a big U.S.-based auto-making complex when it “merged” with Chrysler in 1999, including lots of union jobs and legacy costs. But the company is overwhelmingly German where it counts – on the board. All the same, DaimlerChrysler is now a full-fledge member of the Big Three’s trade association – the Auto Trade Policy Council.

Mistake Number Three was a follow-on – the Big Three went on to join a global automotive lobby group called the Alliance of Automobile Manufacturers, whose ranks include many major German and Japanese firms as well. So sometimes the so-called U.S. producers have tried dealing with Washington as a genuinely American industry, and sometimes as a global industry. Does anyone seriously think that administration officials or Members of Congress can keep this straight? Or care much anymore?

Moreover, anyone doubting that the auto industry’s political globalization has affected its lobbying need look no further than the steel tariff issue. Two of the countries accused of dumping and illegal subsidizing steel are none other than Japan and Germany. Both have long taken a highly nationalistic view of economic policymaking. Both consequently maintain “corporatist” economic strategies, in which government is in bed with industry in all sorts of formal and informal ways, and industries are in bed with each other just as pervasively. And both countries, of course, remain tightly sealed to imports.

In other words, German and Japanese auto companies undoubtedly see the advantages to their steel companies of subsidizing and dumping into the U.S. market, which helps maintain valuable economies of scale for the steelmakers, as well as employment – which keeps steelworkers wealthy enough to buy German and Japanese cars.

If you’re skeptical, try a little thought experiment, as the writer James Fallows would say. Ford and GM can’t hope to export much to Europe, but can manufacture there. But would they have any chance of successfully lobbying European governments to lower the European auto industry’s raw materials prices by giving the green light to dumped steel imports from America? Please! Meanwhile, U.S. companies aren’t even allowed to join the Japan Automobile Manufacturers Association.

The automakers, however, are making broader mistakes as well. Of course, they’re on the ropes now and quite understandably are grasping at any straw available – including returning their steel prices to artificially low levels. But they have forgotten their powerful stake in a strong, diverse American manufacturing base.

Just as their own layoffs and buyouts inevitably impoverish the autoworkers who represented much of their customer base, their efforts to weaken other auto input-supplying domestic industries like steel will result in even more prospective buyers of GM, Ford, and Chrysler vehicles being fired. And these U.S. customers will not be even partly replaced by emerging market populations for decades, if ever. Moreover, given their heavy and growing reliance on exporting to the United States, the same holds for foreign-owned auto makers and for the world’s subsidizers, dumpers, and predatory traders in general

Henry Ford, of course, understood these dynamics when he doubled Ford wages to $5 per hour in 1914 and led the rest of the industry to follow suit. (See my June 26, 2003 column, “Ford Forgets One of Its Better Ideas,”
http://www.americaneconomicalert.org/vi ... rod_ID=858) If his workers couldn’t afford the cars they made, he would be stuck in a niche industry forever, and the rest of American manufacturing would face the same obstacle.

Nowadays, of course, the U.S. economy has found magical ways to put more money in workers’ hand even as their earnings after inflation fall – like keeping interest rates super-low, subsidizing the housing sector, and selling oceans of T-bills to the Chinese and other foreign central banks. None of these sources of income, however, is sustainable, and an auto industry that helps to gut the best-paying sector of the American economy will eventually be an industry with no sales.

America’s steelmakers have done a much better job on trade policy, but they still have a ways to go. To ensure the future of their own industry, they need to drop two outmoded beliefs in particular. First, they need to realize that better-enforcement of existing U.S. trade agreements and tougher U.S. trade laws are no cure-all for the manufacturing trade crisis that they so clearly recognize.

These agreements, after all, were not designed mainly to open markets for U.S. exports. They were designed mainly to facilitate the offshoring of production by multinational companies eager to supply the U.S. market from low-cost locations abroad. That’s why for 15 years, so many of these agreements have been signed with impoverished regions and countries, like Central America and sub-Saharan Africa and China and Vietnam. In addition, how many zillion American officials would be needed to monitor business practices in China and India? These deals were unenforceable from the get-go, and the Clinton and Bush administrations along with the offshoring lobby knew this from the get-go.

Similarly, U.S. trade laws ultimately represent a piecemeal and thus wholly inadequate approach to combating predatory foreign trade practices. The form of predation used by America’s competitors is fundamentally unimportant, but that’s inevitably what the legalistic U.S. trade law system focuses on. What’s critical is the underlying determination to dump or subsidize or steal intellectual property, which can take an almost infinite variety of forms, and which foreign bureaucrats can switch with a phone call – long before the U.S. government or American business even realizes what’s happening. Relying so heavily on trade laws is a formula for reacting and playing defense forever, not solving the problem.

The second lesson steelmakers need to learn involves the importance of linkage in the politics of trade policymaking. All of today’s critics of U.S. trade policy face a paramount challenge – to transform entirely new approaches to trade into completely legitimate policy tools for Washington to employ. Policymakers need to be educated about the realities of U.S. and world trade patterns, but they also need to be convinced that the political and intellectual tides are now running against the free trade ideologues. In operational terms, meeting this challenge means beating back as many outsourcing-focused trade deals as possible, and certainly the high-profile agreements. It also means pushing the envelope with proposals like the trade-balancing tariff bill introduced by Democratic Congressman Mike Michaud of Maine.

Most immediately, when deals come up like Columbia, Peru, the Doha Round WTO agreement, and especially fast track (the renewal of the president’s trade negotiating authority, which runs out in June), America’s steelmakers can no longer say, “That’s not our fight.” Even if not much steel trade is at stake, it had better be steel’s fight if the industry wants to win its high-priority battles. Think of the situation America would be in if the Central America Free Trade Agreement was defeated last year.

Imagine, for example, how much further along the Hunter-Ryan currency manipulation bill would be. Imagine how many Members of Congress – especially in the context of the Dubai Ports and China Unocal firestorms, and the populist revolt against illegal immigration – would have gotten the message that new trade deals are political poison, and far too risky to support. And imagine, too, how many more Members of Congress would be calling for keeping the corrosive-resistant flat steel tariffs in place. Unfortunately, however, steel and too many other Hunter-Ryan supporters in manufacturing sat out the CAFTA fight, and precious months have been lost.

Put simply, industries like steel need to start thinking more comprehensively and more strategically about trade policy, and industries like autos need to start completely re-thinking their trade positions. It’s difficult to imagine solving the nation’s trade crisis before it produces disaster and ensuring domestic manufacturing’s future if they don’t

Yep, I saw the link between immigration and the trade deals along with the FTAA and SPP before I got involved with ALIPAC. That is how I ended up here.