An impending decision on steel imports is shaping up to be a litmus test for how the Trump administration will deal with trade issues: through the framework of free markets and open borders or through anti-growth protectionist measures. Many longtime European allies voiced their concern and opposition to potential U.S. protectionist measures on steel during Trump's second European trip as president. To foolishly abandon a decades-long march toward open markets would further antagonize key allies and could set the stage for a broader trade war that would harm the U.S. economy.
Commerce Secretary Wilbur Ross warned last month that this nation is too dependent on foreign-produced steel and that could threaten national security. But even he acknowledged making that leap requires a "broad definition'' of national security that includes the needs of the economy. President Donald Trump is considering either tariffs or quotas, musing to reporters aboard Air Force One last week, "Maybe I'll do both.'' That remark caused steel stock prices to rise, but such protectionist measures would defy long-standing free trade principles and are not in the broader public interest.
Much of the steel industry's concern centers on China. While China is by far the largest steel producer, it was only the 11th largest exporter of steel to the United States last year. A better approach than new tariffs or quotas would be more conventional multilateral methods such as anti-dumping duties. The United States had more than 100 of these trade remedies in effect against steel imports in 2016, including 20 targeting China, according to the World Trade Organization. They work, with steel imports from China decreasing 63 percent from 2015 to 2016.
The impact of this decision will go beyond steel and signal to other countries what to expect from the Trump administration going forward on trade. The White House appears split between traditional, free market supporters like National Economic Council director Gary Cohn and Treasury Secretary Steve Munchin, and protectionist cheerleaders like Ross and National Trade Council director Peter Navarro. The steel choice will indicate which group has the upper hand with the president.
Last month's jobs report showed 220,000 jobs added, surpassing Wall Street's expectations. The unemployment rate is 4.4 percent, the stock market remains strong and housing prices are up. Trump should not risk that stability by abandoning open trade for protectionism, because the unintended consequences could be serious.