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Is Trump starting a trade war with his tariffs?

Interview by Masao Suzuki |
March 12, 2018
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Fight Back! interviews economics professor Masao Suzuki

Fight Back!: Professor Suzuki, last Thursday President Trump issued an executive order slapping a 25% tariff – a tax on imports - on steel coming from other countries, and a 10% tax on imported aluminum. Is this the start of a trade war?

Masao Suzuki: Just a little background. Following the end of World War II, the U.S. stepped into the shoes that Great Britain once wore, that of being the world’s dominant economic power. One leg of this “empire of the dollar” was the Bretton Woods system of fixed exchange rates, where gold or the U.S. dollar could back the value of different countries’ money. Another leg was a system of free trade, first under the General Agreement on Tariffs and Trade, or GATT, which then became today’s World Trade Organization, or WTO.

In 1971 President Nixon ended the Bretton Woods system by ending the ability of other countries to exchange their U.S. dollars for gold. This ended the system of fixed exchange rates and ushered in today’s floating, or flexible, exchange rate system. What followed was a period of relative economic instability, with much higher rates of inflation as well as more recessions.

Trump tariffs strike a major blow at the free trade system set up under the WTO. While it may or may not begin a trade war, depending on how other countries respond and how the U.S. reacts to their actions, more economic instability is likely in the period ahead.

Fight Back!: Most progressive movements and socialist organizations have been against free trade agreements such as the North American Free Trade Agreement (NAFTA) and the proposed Trans-Pacific Partnership (TPP). Do that mean that we should support the new tariffs?

Suzuki: There are good reasons to oppose free trade agreements such as NAFTA and the WTO. These agreements have served to institutionalize the domination of U.S. and other multinational corporations over countries of the Third World. For example, since NAFTA passed in 1994, foreign trade and foreign investment have soared in Mexico. But millions of agricultural jobs have been lost under the onslaught of cheap and often subsidized U.S. farm products. Wages adjusted for inflation have gone down in Mexico since NAFTA and the rate of unionization among workers has dropped dramatically.

NAFTA and the WTO have also sped up the movement of manufacturing jobs out of the U.S. to other countries. The loss of these jobs, where many were unionized and had good pay and benefits, is a part of the growing economic inequality in this country, where the rich are getting richer, and fewer and fewer have middle-income jobs.

But this is not the only source of job losses in manufacturing. For example, in steel, the U.S. is producing about as much steel as we did 25 years ago. But there are less than half as many steel workers. One reason is that steel production has gone from using iron ore to recycling scrap steel, which is a lot less labor intensive. Another factor is that steel consumption in the U.S. has dropped, especially over the last ten years. This is because new technology has allowed other materials - plastic, ceramics, concrete, etc. - to be used instead of steel.

Imports of steel, like other imports, tend to go up and down with the economy. When the economy is growing, as it is today, imports rise. If we look at the years right before previous recessions such as 2000 and 2007, imports of steel were about the same as a percentage of steel use as last year. But then during recession such as in 2009, imports of steel drop as the economy tanks.

Fight Back!: But even if imports aren’t the main cause of job losses, won’t tariffs shift more production and jobs back to the U.S? There are a number of trade union leaders who are applauding Trump’s tariffs.

Suzuki: It is true that both U.S. steel companies such as NUCOR and U.S. Steel and steel worker union leaders have supported Trump’s tariffs. But I think that this is a very dangerous strategy for the labor movement to take. By supporting the tariffs on steel and aluminum, you are taking sides with your own bosses. This is blaming other countries for what U.S. corporations have been doing to increase their own profits. There is also the danger that the tariffs could cause job losses in other manufacturing industries in the U.S by making steel more expensive. What is really needed is more organizing and solidarity among workers to use labor’s most effective tactic: the strike. I think that the victory of the West Virginia teachers’ strike shows the way to go for the labor movement in the U.S., not rallying to the side of big business to call for more tariffs.

Fight Back!: Before you go, I wanted to ask you about China. A lot of the supporters of the tariffs are pointing their fingers at China, but I heard that the U.S. doesn’t actually import that much steel from China. Could you clarify this point for our readers?

Suzuki: You are right in that only 2% of imported steel comes from China. China does produce about half of the world’s steel. But because the Chinese economy is growing so quickly, with huge expenditures on construction and infrastructure, as well as leading the world in auto production, China consumes a huge amount of steel. Because of this, less than a quarter of the world’s exports of steel come from China. Almost two-thirds of China’s exports of steel go to Asia, and another quarter goes to other Third World countries in Africa, the Middle East, and Latin America. Less than 1% of China’s exports of steel go to U.S.

The United States does have a large trade deficit with China, meaning that the U.S. buys more goods and services from China than China buys from the U.S. But this trade deficit is largely made in the USA. What do I mean by that? U.S. corporations have been the driving force in moving production to Mexico, China and other parts of the Third World. For example, take one of the most common imports from China: the Apple iPhone. Apple used to have manufacturing in the U.S, now it has none. First it offshored production to Ireland, and then to China.

In the 1980s, there was an anti-Japanese scare and talk of how “the Japanese are going to take over the world.” Today there is an updated version of this “new yellow peril” with China as the target. I recently read an interview with Elon Musk, the CEO of Tesla, where he complained that Chinese tariffs were making his cars unaffordable in China, while Chinese cars only faced a U.S. tariff one-tenth as big. We all know that Teslas are not at all that affordable here in the U.S where they face no tariff. Musk also failed to add that no Chinese car companies are exporting cars to the U.S. There are a very small number of SUVs for sale in the U.S. being built in China - but this is by General Motors, another example of a U.S. corporation offshoring production.

Masao Suzuki teaches economics at a community college and is a member of the Freedom Road Socialist Organization (FRSO).