Trump Will Need Imports for His Domestic Priorities
There’s no doubt that U.S. roads, airports and bridges are in great need of repair. It’s equally clear that sourcing raw materials requires open markets. The trouble is that rebuilding U.S. infrastructure and anti-trade policies don’t go together.
Among President Donald Trump’s many loosely packaged proposals are the $1 trillion in U.S. infrastructure spending and the simultaneous threat to impose trade measures on the nations from which we source our commodities.
Trump argues that the North American Free Trade Agreement kills American jobs. He also signed an executive order ordering the U.S.’s withdrawal from the 12-nation Trans-Pacific Partnership. In addition, he has assailed the World Trade Organization and has vowed to levy punitive tariffs on nations that violate trade rules, particularly China, which is a frequent target of his attacks.
These criticisms seem to take no account of the fact that, with the exception of energy, the U.S. imports significant amounts of the commodities it consumes. According to the U.S. Census Bureau, as of November 2016, the U.S.’s top three trading partners were China (15.8 percent), a major supplier of steel, zinc and aluminum; Canada (15 percent), which supplies wood, machines, engines and pumps, and Mexico (14.5 percent), a source for machinery, mineral oils and plastics.
Copper is essential in the electrical, construction and industrial machinery sectors. In 2015, the U.S. imported 756,000 metric tons of refined copper and exported only 95,000 metric tons, according to the Department of the Interior and the U.S. Geological Survey.
The construction industry is the largest consumer of iron and steel, accounting for about 50 percent of world production. In 2015, the U.S. produced about 26 million metric tons of pig iron and 81 million metric tons of raw steel. China produced 710 million metric tons and 822 metric tons, respectively.
Aluminum is one of the largest components of in the aerospace, automobile, building and construction industries, and China’s aluminum smelter production was 20 times that of the U.S. in 2015.
Adding to the conundrum, Trump nominated a number of trade opponents for key positions in his administration. The lawyer Robert Lighthizer, nominated as U.S. trade representative, previously was an official in the Reagan administration and is a harsh critic of China’s trade practices and has argued for a tougher approach, even if it means defying WTO rules.
Peter Navarro, a strident China critic, has been nominated to a new White House post overseeing American trade and industrial policy. He is the author of a 2012 documentary, “Death By China,” and has told Americans, “Don’t Buy Made in China.”
There are three possible outcomes to the seemingly irreconcilable differences between Trump’s policies on trade and his desire to rebuild U.S. infrastructure.
In the first, the president doesn’t get his way on trade but moves ahead with his infrastructure policy. This would push up commodity prices in a manner industry hopes will be gradual.
In the second, Trump wins concessions from China such as greater flexibility on foreign direct investment, fair treatment of U.S. companies and greater efforts to stop the theft of intellectual property. But under these circumstances, China and other exporters could use their negotiating power to impose sanctions, penalties and restrictions on companies importing to or operating in their countries. China could further retaliate with tariffs on cotton, pulp and wood.
The result would be higher commodity prices along with greater volatility, making Trump’s estimate of a $1 trillion budget severely inadequate. Industry experts believe the cost of repairing U.S. infrastructure may be closer to $3.6 trillion, and with higher commodity prices, perhaps even more. There is no doubt that Trump would need to raises taxes or borrow to meet the cost.
The third outcome: Trump would be forced to extend favorable tax treatment and incentives to U.S. commodity producers just as he plans to do with energy, to reduce U.S. dependency on imports.
Producing at home could pressure commodity prices down, but such measures would undoubtedly ignore previous EPA standards that require abolishing greenhouse commitments, putting the environment in severe risk.
None of these scenarios have favorable outcomes, though the first is the most reasonable. In all cases, Trump will likely fail to meet his budget, while trade and the environment will suffer.
The president has unexpectedly contacted defense companies to negotiate prices; but who is he going to call when he wants to cut a deal on rare earth metals?
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