Trump's tariffs: a bad solution to a very real problem | Trump | Al Jazeera

Trump's tariffs: a bad solution to a very real problem

The American working class has very real problems, but neither Trump, nor the Democrats are offering real solutions.

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    US President Trump gives out pens he used to sign presidential proclamations placing tariffs on steel and aluminum imports to workers from the steel and aluminum industries [Leah Millis/Reuters]
    US President Trump gives out pens he used to sign presidential proclamations placing tariffs on steel and aluminum imports to workers from the steel and aluminum industries [Leah Millis/Reuters]

    In a controversial move last week, US President Donald Trump imposed steep tariffs of 25 percent for steel and 10 percent for aluminium imports to the United States. He said he believes the tariffs will safeguard American jobs.

    He was trying to address a very real problem.

    The US used to have really good jobs in heavy industry and manufacturing. They paid well. They often had good benefits like defined benefit pensions and good healthcare - which continued into retirement. They often had strong unions. Those jobs weren't life-time, as in Japan, but they were usually long lasting. They often required muscle, and courage in harsh and dangerous conditions, turning out tangible, obviously useful products. All this created a sense of self-worth, especially for men. The most symbolic of those types of industry are the ones Trump has picked out, aliminium and steel.

    A lot of those jobs were located in the centre of the country, in the areas that nowadays are often called the Rust Belt and Fly-Over States.

    When the companies shut down or contracted, the jobs disappeared, and entire communities - from major cities to small communities - spiraled downward. Stores closed. Main Streets and downtowns were deserted. Neighbourhoods fell into ruin.

    Part of this was natural, inevitable, a matter of history.

    Before the second world war, the US, Europe, and Japan had a monopoly on modern technology and the sort of business organisations that went with it. After World War II, the US was the sole industrial national left standing. In 1947, it produced 56.7 percent of all the steel in the world.

    That couldn't last. Europe and Japan began to recover. The "third world" became the "developing world", and took up industrialisation. The US's first financial boogie man was Japan. The standard myth is that they, like the rest of developing world, competed with cheap labour.

    Trump's solutions to the problem - the loss of jobs, the decline in the quality of jobs, and collapse of communities around such jobs - is costumed posturing at best, moderately destructive if no one cares, very destructive if it leads to a trade war.

     

    The reality is more subtle. Yes, in the 1950s, US wages in the steel industry were six times higher than in Japan, but productivity was three times higher. US industry had other advantages, including cheap energy and better infrastructure, so that the average cost of production was actually lower in the US than in Japan.

    Yet by 1960 the US share in the market was down below 30 percent. By the 1980s, it was about 10 percent.

    During that same period, Japan's share of the world market rose from 6 percent to 16 percent.       

    Why did one go down while the other was rising?

    "Faced with growing pressure ... US integrated producers responded by cutting investment in new plants and equipment." That made sense for each individual company, but was disaster for the industry as a whole, for their labor forces, and for the communities that depended on them. "Meanwhile, Japanese producers embraced and implemented the new technologies ... in facilities of ever-larger scale. The net result was a trajectory that emphasized labor-saving technology and was forward-looking, as compared with the relative stagnation of the US steel industry (pdf)."

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    Japan also used complex and dense forms of protectionism - rather than simplistic tariffs - to keep the home market for domestic producers. The direction and ideas, the co-ordination, sources of financing, and more, all went through MITI, the Ministry of International Trade and Industry.

    The success of Japan was obvious. Their methodologies were imitated in varying degrees and styles by other developing nations, most notably South Korea and China.

    If protectionism has worked for them, why not now, for America? One difficulty is that having ceded much of steel production - aluminum as well - to other countries - and having pursued free trade policies, steel and aluminum and the products made from them constitute an intricate web.

    There's an even greater problem.

    After the US steel industry hit bottom in the 1980s, the parts that were left underwent radical reforms. They increased "productivity", a term that refers to output per worker. It is now a heavily mechanised industry. In 1980, the labour of one person turned out an estimated 200 tonnes a year. Now it's 1,000 tonnes. There's a steel plant in Austria that can turn out 500,000 tonnes with just 14 employees, almost 36,000 tonnes per person. The only way tomorrow's steel is competitive is with ever fewer people. In the US, if recent history is a guide, they will be paid less, benefits will be cut, and unions will be driven out.

    The other Trump tariff is on aluminum. The story there is similar but it has one big twist. Making aluminum is incredibly energy intensive.

    The US is the world number 9 producer, making barely 1.5 percent of the world supply. Iceland makes nearly as much. It has cheap, non-polluting hydro-power and geo-thermal energy. The United Arab Emirates makes almost three times as much. If you add in the other Gulf states, Qatar, Saudi Arabia, and Bahrain, together they make more than 5 times the aluminum as the US, because they can burn natural gas to do it.

    Trump's solutions to the problem - the loss of jobs, the decline in the quality of jobs, and collapse of communities around such jobs - is costumed posturing at best, moderately destructive if no one cares, very destructive if it leads to a trade war.

    The solutions offered by the Democrats are ... non-existent. To be utterly fair, they do recommend things like "job training." But for what jobs? Retail? Fast food? Call centers? We can watch them on TV, caught flat footed, trying to say that Trump is wrong by quibbling over bad "free trade" theories, and offering nothing for the unions, who should be their constituency.

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    The problem Democrats have is half intellectual. They can't make the case for economic planning even to themselves, let alone to the public. Just as they've surrendered to the "power of the market" for the nation, they've done so for themselves as well, serving only the interests that make contributions to them. But the historical truth is that every nation that has made itself an economic success has done so the way MITI lead Japan. That includes England, Germany, Japan, South Korea, China, and yes, the US.

    The problem - a functioning economy for the abandoned working class - has solutions. It's necessary to look to the future, not the past. The past is full of old tech and everyone can do it. Going backward requires tearing entanglements apart. It's much easier and less costly to find clear spaces, which are mostly in the future. If the goal is good employment, the questions have to be these: What can't be outsourced? What must be labour intensive? What won't naturally flow to the coasts and can stay in the rust belt?

    The first, and most obvious answer, is alternative energy. A forgotten fact, which used to be a rigorously ignored fact, is that for decades imported oil accounted for about a third of the US negative balance of trade. The creation of new, cheap natural gas through fracking, has made the US much more competitive. Wind, solar, tidal, geothermal, and as yet unknown sources of energy will only increase that advantage. The central states are a wind belt. The Southwest is rightly called the Sunbelt. Even if some of the manufacturing of solar panels takes place abroad, these things are largely construction projects and, therefore, have to be done and maintained domestically. Infrastructure is an invisible subsidy to all other businesses. Making things easy, swift, reliable, and efficient, reduces costs for everyone. Thanks to Abraham Lincoln - who was, single-handedly, the MITI of the 19th Century - the US has major universities in every state. All with significant research abilities. Make a best guess as to what will be the seven most significant science and tech areas of the future. It doesn't matter if four of them are wrong. Then pick the regions that need the most help.

    The problems and the pain are real. It is sad that Trump is the only politician addressing them with passion. It is unfortunate that his fix-it ideas are like going after a computer glitch with a hammer. It is tragic that the Democrats abandoned the field long ago and have yet to awaken with a charge to regain it.

    The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial stance.


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