George and Steel Tarifs

The fab industry doesn't give a damn what happens to the US steel industry, as long as they can get steel from somewhere. The US steel industry doesn't give a damn what happens to the fab industry, as long as there's somebody, like the car manufacturers, who need to buy steel.

All that either of them care about is their own wallets.

Ed Huntress

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Ed Huntress
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Sad as it is, It's the American Way.

Reply to
Mark

Well, there are certainly a lot more jobs at stake in the steel using industries than there are in the steel making industry. Those jobs are mostly higher value added too. The tariff resulted in a de facto 30% price increase for steel using industries, with no corresponding protection of markets or jobs in those industries.

Forbes said that the tariff contributed to the loss of 200,000 jobs in steel using industries over the last 2 years. That's more jobs than the entire US steel industry has.

If the US government wants to retain a domestic steel making capacity, and there are defense reasons for wanting to do so, then a targeted tax *cut/credit* for the domestic industry would have been less harmful to the economy than a tariff. (Note, however, that such a subsidy would also have been challengeable under WTO rules, see the current row over agricultural subsidies.)

The root of the domestic steel industry's problems lies in promises it made to its union workers years ago which it is struggling to meet today. In other words, it has a huge *unfunded* pension and benefit liability that is becoming increasingly difficult to pay out of current operating funds due to today's more competitive environment, and the shrinking share of the steel market that US companies control.

When there was little foreign competition, the steel industry expected that it could set its prices high enough to cover those unfunded liabilities as they became due, rather than funding an actuarially sound pension plan at the time they assumed those liabilities. Thus they knuckled under to union demands, figuring the associated costs were far down the road, and a problem to be worried about another day.

But in today's world, they aren't free to raise prices. They no longer have monopoly power. Their customers can simply switch to another supplier offering a lower price. So that accounting trick of deferring liabilities until they are due is costing them dearly now.

This is not too unlike the dilemma of another unfunded benefit program, Social Security, with the difference that the steel industry doesn't have the power to go out and coerce money from other people to pay for it. They have to beg the government to do the coercion for them.

Gary

Reply to
Gary Coffman

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