Today, Explained - What's the Deal with Steel?

Episode Date: March 6, 2018

President Trump announced that he's okay with a trade war late last week and he's got the tariff proposals to prove it: 25% for steel, 10% for aluminum. It’s another campaign promise fulfilled, but the decision flies in the face of Republicans in Congress and most of Trump’s own advisors. (Economic advisor Gary Cohn even quit today.) Vox’s Matthew Yglesias explains the impact of these tariffs, and the chances they could spark a trade war with our allies. He also hums a little ditty about steel. We run with it. Learn more about your ad choices. Visit podcastchoices.com/adchoices

You probably don't think a ton about your toothbrush, but Quip does. Quip has combined dentistry and design to make a totally new electric toothbrush. Quip starts at just $25, and if you go to getquip.com slash explained right now, you'll get your first refill pack free with a Quip electric toothbrush. G-E-T-Q-U-I-P dot com slash explained. This is Today Explained. I'm Sean Ramos-Firm. You might have heard we're heading for a trade war. Wall Street is worried about a trade war. President Trump says he will slap tariffs on steel and aluminum.

Which seems bad. This is leftist economic policy, and we've tried it a whole bunch of times over the last two centuries, and every time American families have suffered. I love the president. I think he's done a terrific job up to now. This could turn everything the other way. But also, maybe good? The president's hasty announcement of a trade war appears to have been spooking markets. He wrote, when a country, USA, is losing many billions of dollars on trade, with virtually

every country it does business with, trade wars are good and easy to win. There are a lot of moving parts to this thing. Aluminum's involved, NAFTA's affected, Brazil's going to be mad. If the United States is about to piss off a bunch of its friends, you should know exactly why. Steel. So I asked Matthew Iglesias what's up. He writes about economic policy at Vox. I really thought I understood how decision-making worked in the Trump White House, and then it changed. We started with the question a lot of us have been asking lately.

What's the deal with steel? It's heavy. It's strong. Some of it is imported from foreign countries, and Donald Trump is going to put a 25% tax on that imported steel. The idea is that by taxing foreign steel, we are going to boost the domestic steel industry. And certainly in the short term, it's going to create a big profit opportunity for domestic steel makers because they could raise their prices up to the new sort of higher rate that foreign steel is going to cost. So in the short term, you're looking at higher prices for people who use steel,

bigger profits for American companies that make steel. And then in theory, if the 25% tax stays on for a long time, that greater profitability could lead to an expansion in domestic steel production. So how do we get here? I mean you hear a lot about cheap Chinese steel flooding the market. What's the history here? The American steel industry took a big hit in the late 1970s and early 1980s when some foreign countries, at the time Japan was a big player, it's gone global since then,

upped their quality game in terms of steel production. American steel output fell a lot in that period and it's been pretty steady for the past generation. So we're not looking at a steady erosion of US domestic steel production. It fell a bunch. It never really came back. But it's been going OK despite these tariffs. We do import a lot of steel. The number one source of foreign steel for the United States is Canada, not exactly a distant land. There's a lot of commerce back and forth across that border. They do do a lot of steel there.

I feel like we've seen a lot of news back and forth in the past week about these steel tariffs. Could you kind of walk us through the back and forth of it? Sure. So there have been reports for weeks that the White House was having internal arguments about whether or not to do this. And the situation became very chaotic at one point last week when reports came out that tariffs were going to be imposed almost immediately. And then other reports said, no, no, no, there's not going to be any announcement this week. Then we heard on Thursday, Trump is going to do a meeting with executives

from metal companies. So we did the meeting and then he comes out of the meeting and he just announces to the press pool, yeah, we're doing it. It'll be 25% for steel. It'll be 10% for aluminum. And it'll be for a long period of time. Tariffs are coming. And then he followed that up, not with, you know, a well-crafted executive memo laying out all the details of this, but with a couple of tweets. And then he's been reiterating on Twitter ever since, all weekend, that this is happening, that he's ready for a trade war. He thinks we can win a trade war, that Canada and Mexico need to make concessions on NAFTA or they're going to be hit too. He put out a couple of advisors on television over the weekend to defend this policy. Wilbur Ross.

This is a can of Campbell's soup. In the can of Campbell's soup, there's about 2.66 cents 2.6 pennies worth of steel so if that goes up by 25% that's about six tenths of one cent on the price of a can of Campbell's soup well I just bought this can today that a 7-Eleven down here, and the price was $1.99. So who in the world is going to be too bothered by six-tenths of a cent? Here's a can of Coca-Cola. Interestingly, they still have not actually done it. They keep saying that the tariffs are coming. It seems like they are coming, but it has not been officially enacted. That said, the authority to do this sort of resides inside the Commerce Department. And

the Commerce Secretary, Wilbur Ross, he has a background actually as an investor in the steel industry. He is a proponent of these tariffs. Steve Mnuchin, the Treasury Secretary, Gary Cohn, the head of the National Economic Council, Secretary of State, they are all said to be opposed. Those are sort of the major heavyweights in most administrations. But Ross, the Commerce Secretary, he's for this. So is Peter Navarro, who heads a special White House office on trade and manufacturing. So it definitely appears that this is going to happen, but it has not literally happened yet. And why are Ross and Navarro on board with so many Republicans standing against it?

I mean it's a little difficult to speculate, but the general view seems to be that the existence of a trade deficit, right? The United States buys more from abroad than foreigners buy from us is really bad. That's what they think. And so anything that pushes back against that, they have some kind of sympathy for. The particulars of why aluminum and steel are being chosen, some of that has to do with the politics. This is a big concern in Pennsylvania and Ohio, which are sort of specifically areas that matter to partisan politics. There is authority to invoke tariffs for strategic industries to protect national security. That's a power that the president of the United States has.

The argument that American national security is threatened by importing steel from Canada is a little – I would say it's questionable. The implication is that we might fight a war with Canada or that if we fought a war with someone else, the Canadians might refuse to sell us steel. Like a real war, not a trade war. Yeah. The larger issue though is that Peter Navarro, he's an economist. He has a PhD. He was a professor in the University of California. But his views on trade are way outside the mainstream of the profession.

And he appears to think anything that makes it harder for Americans to buy goods abroad is going to be good for the American economy because we will buy more that's made at home and that will create jobs. Almost nobody believes a view as simplistic as Navarro's. It almost sounds like a straw man view at times, but this seems to be what he really thinks. And outside of the Americans who might feel this directly because of their employment situations in Pennsylvania or Ohio, how might the average person come to encounter these tariffs if they are approved? Sure. You know, if these tariffs come in, you should be looking at somewhat higher prices for consumer goods.

Like a can of beer? Cans of beer, cars, large appliances. So, no, if you think about it, right, I mean, if you look at a can of beer, right, now the metal content of that beer is not that big of a deal compared to the cost of actually brewing it, shipping it, refrigerating, retail markups, things like that. So, you know, don't expect to see the price of beer explode or anything. But it should go up a little bit. For construction, though, is where you might see the biggest impact. I mean if you're not in the market for housing, you won't necessarily notice that. But a lot of construction projects happen on very thin margins.

There's very complicated calculations. Big buildings in particular have a lot of steel in them and it could be very disruptive to that industry. How that matters downstream is going to depend a lot on where you live. But like in Sunbelt cities that are growing fast, that have big construction industries, you know, that should be a big problem. I think the biggest question, though, for the typical American isn't what happens with the steel and aluminum. It's what happens next. Like a trade war or something? Right.

So Europe is going to target some American products. Probably they're going to get cute. They're talking about bourbon because Mitch McConnell's from Kentucky. They're talking about Harley Davidson's because they're made near Paul Ryan's district. They're talking about blue jeans because they're made near Kevin McCarthy, the House Majority Leader's district. Are they going to tax Bruce Springsteen or something, too? They're going to hit congressional leaders with some Americana-type stuff. And that'll be bad, you know, for some people who are impacted.

But then the real question is, like, what happens after that, right? Does Trump say, OK, it is what it is, and we all move on, and we talk about the next crazy thing that happens? Or does he put in a new round? And if he does that, the Europeans will retaliate again, and then we'll retaliate again. So you could see an incredible escalation, and that would be a really big deal. Just ahead on Today Explained... Steel.

Republicans are mad at President Trump about his steel tariffs, but a bunch of Democrats are totally down. More with Matthew Iglesias after the break. Steel Steel Steel It's heavy It's strong Steel Steel

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Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. Steal. brush them. So maybe think about getting a toothbrush from Quip. It's like the smartphone to the flip phone of electric toothbrushes. With Quip, guiding pulses alert you when to switch

sides, making brushing the right amount effortless. And Quip does all the dental forecasting for you too. Its subscription plan refreshes your brush on a dentist-recommended schedule every three months for just $5, including free shipping worldwide. That's probably why Quip is backed Thank you. Right now, you'll get your first refill pack free with a Quip electric toothbrush. In case you missed that, that's your first refill pack free at getquip.com slash explained. G-E-T-Q-U-I-P dot com slash explained. I'm Sean Ramos from This Is Today Explained. An important takeaway from all this recent steel talk is that steel tariffs aren't new. In fact, the last time a Republican president imposed them was... I decided that...

Just the last Republican president. Imports were severely affecting our industry, an important industry, and had a negative impact and therefore provide temporary relief so that the industry could restructure itself. Did it work out for him politically? Bush put these things forward in part to sort of gain political support in Pennsylvania and Ohio. More narrowly, he was trying to cobble together the votes to pass a trade liberalization measure through Congress. So in that sense, it worked, right? They got the vote in Congress that they needed. They sort of bought some people off with

the steel tariffs. Ultimately, though, Europe imposed some tariffs as a sort of countermeasure. Revenge. Yeah, revenge. And that became a political problem of its own. Bush backed down after less than a year and a half of his tariffs to sort of resolve this. Studies that have been done, they show that the Bush tariffs, they did create jobs in the steel industry, but they say that they cost more jobs than that in industries that use steel. Some aspects of trade policy are, I think,

very complicated. This particular thing is quite straightforward, though. It's nobody, I mean, maybe you're a weirdo and you do, but nobody just like buys steel, right? You buy stuff that is made of steel. And so making steel more expensive, it's good for the people who manufacture steel, but it's bad for the people who manufacture stuff that is made out of steel. There are more manufacturing workers employed in industries that use steel than in industries that make steel. So it's a tough sell. It's a tough sell, but it's also sort of a sell that's making these strange bedfellows. Like a lot of Republicans are angry and some Democrats are down. Yes, exactly. Bob Casey, Senator from Pennsylvania,

Sherrod Brown, Senator from Ohio, Representative Ryan, also from Ohio, from a steel producing region. They've been very, very vocal. They're very for this. Trade politics is easy if you are a member of Congress. I remember I asked one chief of staff on the Hill, you know, what do you think about this? And he said, we're either for steel and against aluminum or it's the other way around. I can't quite remember. And I said, like, well, what do you mean? And he was like, we have a factory. They either use steel or they use aluminum.

I can't remember which one. So we're against that one. They're not actually making trade policy. You're just taking positions. So you look at your district and you just look at what company headquarters, what factories do I have? If you have a steel mill, you're for steel tariffs. If you have a plant that uses aluminum, you're making cans or something, you're against aluminum tariffs. And it's simple. You count on the president, not just on trade but on a wide range of issues to be able to take a sort of a broader view than that, right? Because you're the president of the whole country.

So you sit and you say, look, we got a lot of can factories. We got a lot of steel factories. I need to – I understand that everybody wants what's good for them. But I need to at a minimum like count everybody up and sort of weigh what's the public interest. Something Trump did earlier that was less controversial was he put tariffs on imported Chinese appliances. Yeah. I am taking action to impose safeguard tariffs

on imported residential washing machines and all solar products. It's going to raise the costs of washing machines to some people, but also be a big help. But so washing machines, other household appliances, they're made of metal, right? So earlier in the year, he's trying to help American appliance manufacturers, but now he's hurting American appliance manufacturers. So instead of a thing where maybe we all pay a little bit more for our washing machines but we preserve a domestic industry, now we're all going to pay a little bit more for our washing machines for no reason at all. With the left hand, we're helping the domestic appliance manufacturers. With the right hand, we're hurting the domestic appliance manufacturers.

In the end, like nobody is helped. And that's what happens when you don't have a real policy process. You have a president whose instincts incline him to favor tariffs, but whose political party and whose economic team is disinclined to favor tariffs. So he's just doing things and there's not a lot of rhyme or reason to when he's putting these on or what kind of strategy he's advancing. What about President Trump's promise to make America great again? If not the most coherent set of trade policies, is this at least checking off a populist appeal box or something? I mean, I think that's exactly to the point, right?

Trump practices very adeptly a kind of symbolic politics, a politics of nostalgia, a politics of true Americananess. And the image of steel in particular is very important to that. The image of coal is also important to that. The image of rural America is very important to that. And Trump paints a good vista of sort of all these things going together and him promoting a backward-looking, nostalgic, great, we were great in the past, we will be great again in the future by being more like how we were in the past. Then when you look at it on a policy level, it's much more difficult, right? So Trump has celebrated the opening of some new auto plants in the United States saying,

it's great. Thanks to me, they're coming here instead of coming to Mexico. But the steel tariffs encourage you to build the car in Mexico, right, where the steel comes in without the tariff and then you ship the car. So that's backwards too. There's a tension there. And in general, American agriculture, right, really rural areas where they're growing corn and soybeans and meat, they've been huge winners from global trade.

America is an enormous exporter of agricultural commodities all around the world. And if you have a big disruption to the world trading system, that's going to be a lot of Trump supporters. Rural Midwestern Americans involved in the farm industry either directly indirectly, are going to be harmed. So the policy details just do not go together nearly as nicely as the symbolic politics. And so Trump sort of does best when he's heavy on symbolism and low on substance, because when you try to put more and more substance into delivering on these promises, you find that they're in a lot of tension with each other. Matthew Glacius is a senior correspondent at Vox. He also hosts the Weeds podcast. I'm Sean Ramoser. I'm host of the Today Explained podcast. What if your toothbrush cared about design as much as it cared about dentistry?

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