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Real Economic Consequences of Mercantilist – Un-Free- Trade

|Includes: AK Steel Holding Corp (AKS), BHP, CLF, CMC, GGB, GNA, MT, NUE, RIO, RS, SCHN, SMSMY, STLD, VALE, WOR, X, ZEUS

Your New Year's Eve Day "Steeling from Americans" editorial on Chinese pipe tariffs is off in a few ways. First, China is a high-cost steelmaker and its exporting into the lower-cost U.S. is mercantilism, not free trade. It also practices protection with cash subsidies, restraints on raw material exports, barriers to entry from global peers, export subsidies, etc.

Second, tariffs aren't even the bad news you might think for the buyers. In the short run, they may pay higher prices, true. But in the long run, lower cost domestic suppliers would be driven out of the market; when China stopped subsidizing—and it would, it's unsustainable—U.S. buyers would pay even higher pipe prices.

Ask any of the bankrupt auto-parts makers (who benefited from cheap subsidized and dumped steel in 1998-99) how their steel purchases worked for them in 2003-08 after three dozen U.S. steelmakers went into bankruptcy. They'll explain the difference between long run and short run, which is why we and every other nation have rules about trade.

Finally, worries about Chinese retaliation don't make sense. If retaliation means that China holds us accountable to world trade laws, then where's the problem?

But the retaliation worry is really about the core problem: China doesn't play by the rules; it restricts imports and investment based on its own mercantilist interest, which is not in line with the global trade rules others play by. The seduction of the size of the Chinese market has put too many in this country in the position of enablers, but even the enablers are starting to get it. In the end, we all know that bullying behavior backfires; sometimes it just takes a while.

- Michelle Applebaum, Steel Market Intelligence, Chicago

Disclosure: NA

Disclosure: N/A