Opinion

Where Are the Winners of the Trade War?

One of the foundational axioms of international trade theory is that trade between countries generates winners and losers. More international trade leads to increased specialization in industries with comparative advantage and displaces labor in less-efficient industries. Erecting barriers to reduce the trend toward greater international trade, as the Trump administration has attempted to do, should logically lead to a benefit for certain companies or industries which, for any number of reasons, have found it difficult to compete with foreign producers. However, the real effects of the Trump administration’s protracted trade war reveal many losers in the United States and few, if any, winners.

Many of the losers from the Trump administration’s sustained trade war were predictable.  Companies that had built reliable supply chains in China have had to swallow the 25 percent duties on Chinese imports or disrupt their distribution networks by changing suppliers to avoid the duties. Retaliatory tariffs against U.S. agricultural products have contracted export markets and led to a reduction in crop prices, necessitating a $16 billion intervention by the administration to keep farms afloat. And, of course, the tariffs themselves are passed on to consumers through increased costs.

Other trade war losers have self-identified in an effort to seek relief from the duties imposed on them. Over 50,000 requests were submitted to the Office of the U.S. Trade Representative to exclude specific products from the Section 301 duties on imports from China. Each exclusion request required a detailed description of the severe economic harm to U.S. interests caused by the tariffs. Despite the evidence provided by those petitioning the government for relief, only a small percentage of requests have been approved by USTR thus far.

The most surprising of the trade war’s losers have been the companies that the administration’s tactics were originally designed to help. Strong overall U.S. economic growth since the beginning of the Trump administration has overshadowed what has been a lackluster showing for the U.S. manufacturing industry during that period. Three of the largest U.S. steel producers (Nucor, U.S. Steel and AK Steel) have continued to perform poorly despite the administration’s efforts to protect the steel industry. U.S. steel factories once supportive of the administration’s Section 232 tariffs on steel and aluminum now depend on exclusions from those tariffs for survival, while others are suing the administration for relief.  

Even the Trump administration acknowledged in its January broadening of the Section 232 tariffs to include downstream derivative products that “domestic steel producers’ capacity utilization has not stabilized for an extended period of time.” Early evidence of the impact of this expansion of Section 232 duties shows only more harm, and more U.S. manufacturers are suing for protection against the increasing collateral damage of the administration’s trade war.

As the lawsuits mount and the short-run effects of the trade war begin to look more and more like medium- or even long-run effects, these policies have not proven beneficial to U.S. companies. Despite the administration’s efforts, U.S. manufacturing has not rebounded. Primary steel and aluminum producers are no better off than before the trade war. U.S. consumers pay more for imported products while wholesale purchasers scramble to meet demand without imports from China. With the evidence of losses mounting on all sides of the Trump administration’s trade policies, onlookers are left to wonder: where, exactly, are the winners of this trade war?

 

Wyn Bellhouse is an international trade consultant at the law firm Mowry & Grimson, PLLC. He previously served as an international trade specialist with the U.S. Department of Commerce. 

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