Posts Tagged Trade/Protectism

IF TRUMP INVOKES QUOTAS AND/OR TARIFFS TO PROTECT THE STEEL AND ALUMINUM INDUSTRIES, AMERICA AND THE WORLD WILL SUFFER!

Trade Protection was a major topic at the recent G-20 Summit, in Hamburg, Germany; along with Climate Change, and Immigration, were the primary concerns addressed by the leaders of the 20 largest economies.  The evils of Protectionism are widely-known, since it was one of the major causes of The Great Depression, in the 1930s.  Donald Trump, however, doesn’t seem to understand History and, for him, it’s just full steam ahead—regardless of the long-term implications!

Quotas and tariffs are generally the two major tools that nations use to overcome price advantages on foreign competitors’ imports.  Since the World Trade Organization was established in 1995, to regulate International Trade; however, the imposition of such protective measures has decreased.  But, most attendees at the G-20 Summit seemed genuinely fearful; because, the world’s largest economy—representing 25% of global GDP—is threatening to use protectionism against foreign steel and aluminum companies. Such actions, however, generally result in similar response from the targeted countries.

Before a country considers its various courses of action, it should analyze exactly why its products’ sales have weakened!  Are the problems incurred industry-wide, or just within one sub-sector?  Or only one company?  Are the products or services effected of some national security importance?  Have the companies impacted maintained industry technological and best practices standards in their production processes?  I seriously doubt that the Trump Regime had gone through such a thorough review process, before threatening quotas and/or tariffs?  That’s just not his style!

The purpose of the WTO is to diffuse any such disagreements, before trade wars erupt. And yes, when one nation fires the first volley, the other side normally retaliates. In many cases, such trade wars may spread, and the contagion might go global, as it did in the build-up to The Great Depression.  Recently, China and the European Union have taken the U. S. to the WTO, regarding these most recent protectionist threats!

Lately, the major American steel and aluminum corporations have been prodding Trump to follow-up on his various threats.  Do problems exist only in the major corporations within the two industries, the so-called “integrateds”, which function throughout the full range of products, or are the smaller, specialty companies having the same problems. These industries are not monoliths—and perhaps some companies are more or less technologically efficient, and up-to-date than others.

If foreign corporations are taking unfair advantage—using child or slave labor, or receiving government subsidies—such cases should be addressed by the WTO.  On the other hand, there are corporations who hide behind the government when they fail to maintain basic competitive standards.  It’s not the role of any government to fight corporate or industry battles, especially when the relevant corporations failed to invest in themselves, in order to enhance profitability!

Government surely should defend businesses and industries, when they are taken advantage of, but it should insure that the true problem(s) are not within the company’s or industry’s own control.  I can recall, back during the Reagan Administration, when quotas were imposed on foreign steel imports.  Subsequently, the domestic producers raised prices, just because they could!

When countries get into a Trade War–with quotas and tariffs flying in both directions–prices often rise in all nations involved.  Higher prices often cause consumer demand to decline, unemployment can ensue, and recession might be the end result–perhaps in all countries involved.  It is difficult for the respective governments take rational corrective action during a trade war, when the next round might be just around the corner!  So, hopefully these recent Protectionist threats are just one of Trump’s latest rants!

NOTE:  Welcome to Tola, in Nigeria!

 

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