CANADA, MEXICO, AND AMERICAN STEEL

"Mexico is the U.S. steel industry's second largest export market after Canada."

Kevin M. Dempsey

May 10, 2017

Within 90 days of the date of this order [so, by the end of June], the Secretary of Commerce and the United States Trade Representative, in consultation with [other agencies]... shall prepare and submit to the President an Omnibus Report on Significant Trade Deficits.

The order goes on to say that in preparing the report, Commerce and USTR "may hold public meetings and seek comments from relevant ...[parties], including "manufacturers, workers, consumers, service providers, farmers, and ranchers."

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But let's go back to the specific concerns of the American Iron and Steel Institute. The first country Mr Dempsey talked about in the attachment to his May 10 letter was Canada and the last country was China. Here are the full paragraphs for each of those two countries.

China: Significant trade distortions caused by Chinese government policies contribute to a massive trade imbalance that has impacted the American steel industry not only in terms of direct trade in steel, but also in terms of substantial levels of imports into the United States of steel-containing manufactured goods, which have disrupted the entire steel supply chain, reducing domestic demand for steel products.

The large volume of Chinese steel exports in recent years is the direct outgrowth of a dramatic increase in the size of the Chinese steel industry since 2000, which has been made possible by massive government subsidies and other trade distorting policies, at the expense of market-oriented steel producers around the globe.

Regarding Canada, Mr. Dempsey wrote:

The U.S.-Canada trade relationship is a strong and balanced one. It is the United States top export market for manufactured goods generally, and also the top export market for U.S. steel products. American steel mill exports to Canada have averaged over $5.5 billion per year over the last three years. While the United States runs a slight trade deficit with Canada in volume (tonnage) terms, the United States has a steel trade surplus in value (dollars) terms. This reflects the overall strength and balance in the U.S.-Canada trade relationship.

Today's entry is little more than a quixotic effort to get a small head start on a large project. The project, of course, is the effort to define and respond to the challenges that are packaged in the box of America's large and persistent trade deficits. It is certainly a project that has gotten the world's attention. The list of those who have submitted comments is impressive, from the European Union and Japan to wheat growers and the U.S. Fashion Industry Association. In all likelihood, many of those comments will be the subject of future TTALK Quotes.

As for the merits of the project itself, we are more inclined to praise than to criticize. If you have ever cleaned out a garage or closet -- and been caught in the act of doing so -- you have doubtless heard someone exclaim, "What a mess!" But that does not mean the project was not worthwhile. This project is likely to prove a little messy but it may prove its worth. The U.S. trade deficit is an issue, and we saw nothing disturbing in the executive order mandating a report on it, nor in the steps that have been taken to date to comply with that order. Rather the order struck us as a valuable expression of concerns. Those concerns go back much farther than the 1980s -- think of President Nixon's dramatic actions in 1971-- but for us it was the 1980s that the President's order brought to mind, along with initiatives like Super 301 and the National Trade Estimates Report, both of which we associate with former Senator John D anforth of Missouri. 

Finally, it is useful keep in mind that there are at least two different ways of thinking and talking about trade deficits. On the one hand, the fact of the deficit can be a useful tool in the hands of a good advocate. It is a hammer for driving in any number of policy nails. Such usage is in no way illegitimate. If foreign subsidies are destroying an efficient American industry, for example, all of the consequences of that should be brought to light, including the fact of a worsening U.S. balance of trade.

Whether trade deficits are good or bad for the economy overall, however, is a separate question. Maybe they are good. After all, stronger growth is generally associated with deepening deficits. As for us, we are not among those who have learned to love the trade deficit, but that is not the point, at least not here. Here the point is that the issue of how one should look at trade deficits will continue to have a life of its own, independent of the debates over whether particular products are being traded fairly or unfairly.