Japan Institute for National Fundamentals

Speaking out

Yujiro Oiwa

【#502(Special)】U.S. Import Restrictions Benefitting China

Yujiro Oiwa / 2018.03.14 (Wed)

March 12, 2018

     On March 8, U.S. President Donald Trump signed orders to restrict steel and aluminum imports. On the same day, 11 countries excluding the United States signed a new pact to put their Trans-Pacific Partnership free trade agreement into effect within this year.
     Any selfish action by a superpower that should take leadership for the world can destabilize the world. The United States should recognize the graveness of its responsibility. At the same time, other major countries including Japan should refrain from short-sighted actions which focus only on negotiations to request their respective exemptions from the U.S. import restrictions.
     If the United States, brushing away international frameworks, is bound only by its own interests and loses its cause, it will invite a further decline in free trade economy and benefit China from which a steel overproduction problem has originated.

Steel industry decline is a U.S. domestic problem
     The United States had accounted for nearly 50% of global crude steel production in the 1950s, lost its technological advantage in the 1970s and saw its share falling to less than 5% in 2017. As the U.S. steel industry attributed its decline to cheap imports, the U.S. government repeated various restrictions on steel imports from the mid-1960s. It invoked a safeguard emergency import curb on steel in 2002 and retracted the measure in response to the World Trade Organization’s ruling that the measure ran counter to WTO rules. In fact, the U.S. steel industry has declined under import restrictions.
     The U.S. steel industry lost its international competitiveness because of its high costs that far exceed an all-industry average and has failed to tackle the cost problem because of import curbs. Wage drops and unemployment for middle-income people in the Midwest that President Trump has cited as the reason for levying the import curbs have been attributable to a delay in the domestic industry’s restructuring to meet technological innovations including automation and robots.

Build on the TPP to expand free trade
     The U.S. import restrictions could trigger a trade war with Europe and Japan that should intrinsically collaborate with the United States as fellow free capitalist economies. China could also take advantage of the U.S. measure for invoking its own import curbs for national security reasons. The United States should remember that the 1930 Smoot-Hawley Tariff Act caused a trade war that hurt all countries including the United States.
     The Trump administration insists that as growing steel and aluminum products imports amid China’s overproduction and cheap exports pose a threat to U.S. national security, it must raise capacity utilization rates of domestic steelmakers for national defense. While the import restrictions clearly target China, past import curbs show that they cannot resolve government subsidy and dumping problems fundamentally.
     Multilateral free trade agreements should be expanded based on the TPP to pressure the Chinese government into reforming state-run companies.
     To this end, Japan should strongly protest U.S. protectionist measures based on its WTO rights instead of depending on any easy import restriction to counter U.S. measures.

Yujiro Oiwa is a JINF Planning Committee Member and Professor at Tokyo International University.