21st Century Global Trade Agreements

U.S. Senate Majority Leader Mitch McConnell (R-KY)

U.S. Senate Majority Leader Mitch McConnell (R-KY)

Earlier this year U.S. Senate Majority Leader Mitch McConnell (R-KY) told the Kentucky Farm Bureau Federation, “It seems like the politics of trade have become rather toxic” referring to the anti-trade mood in the U.S.  Strong protectionism views went on to become major themes in the presidential campaigns of the two major political parties.  This is a striking contradiction for the U.S. that has long championed itself as a supporter of free trade.

Buy America

It seems these views are holding true post-election for a small minority of U.S. Senators.  Recently, 23 democrats and 1 lone republican sent a letter to their chamber’s respective leaders, Mitch McConnell (R-KY) and Harry Reid (D-NV), “express(ing their) concern that an important Buy America provision for the Drinking Water State Revolving Fund (DWSRF) has been struck from the Water Resources Development Act (WRDA) conference report to be considered by the House and Senate.” The Senators were referring to Section 7117 of S. 2848, the Senate version of WRDA that requires iron or steel products used in water infrastructure projects, such as lined or unlined pipe and fittings, manhole covers and other municipal castings, hydrants, tanks, flanges, pipe clamps and restraints, valves, structural steel, reinforced precast concrete and construction materials, be produced in the U.S.

The Senator’s letter goes on to say that the “Buy America is an important job-creating provision. If subject to the Buy America provisions, DWSRF-funded infrastructure projects will be required to use American iron and steel. As a result, companies will have incentives to invest in domestic manufacturing facilities, and U.S. taxpayer dollars will support American manufacturers.  Removing the Buy America provisions from the DWSRF will have the opposite effect.

The letter concluded saying, “The American people spoke clearly in this past election that they want leaders who fight for the working class and who advance policies that create more jobs and grow the U.S. manufacturing sector. We urge you to heed their voices in the WRDA negotiations and ensure the DWSRF Buy America provisions are incorporated in the final bill.

China: increased output of steel by 8x over the past 15 years

The 24 Senators are likely attempting to address the continuing threat faced by U.S. steel companies of cheaper steel imports pouring into the U.S. due to a stronger U.S. dollar, lower oil prices and China’s continual expansion of its output of steel.  China, the largest producer and exporter of steel, has increased its output of steel by eight-fold over the past 15 years.

But, the Senator’s letter made no mention of the measures already taken by the U.S. Department of Commerce (DOC) to curb the influences of Chinese steel imports.  DOC has imposed hefty final anti-dumping duty rates of 265.79% on imports of cold-rolled steel from China. The DOC also imposed a massive final countervailing duty rate of 256.44% on Chinese imports (the preliminary duty rate was 227.29% imposed in December 2015). This should already be proving to be a major increase for U.S. steel companies in their ongoing battle against unfairly traded, cheap imports into the U.S. market.

The letter also did nContainer Cargo ship in the ocean with Birds flying in blue sky, Freight Transportation.ot mention that both China and the U.S. have engaged in bilateral discussions on steel to attempt to curb the growing world supply.

The bottom line is China will always be a factor as multiple global uncertainties abound as they try to stabilize their slowing economy. China’s response will likely simulate past practices including a devaluation of their currency that will enhance the competitiveness of their exports globally.  So, it is likely steel exports from China will continue to increase.

U.S. lawmakers can better serve their constituencies by stopping the derogatory trade campaign rhetoric and piecemeal legislative approaches and get down to the business of assisting President-elect Trump in crafting comprehensive global trade agreements for the 21st Century that:

  • Encourages and provides incentives for entrepreneurship and innovation,
  • Eliminates decades-old U.S. trade-distorting laws passed in an era long gone such as Berry Amendment (1941), Jones Act (1920), Buy America Act (1933) and Buy American Act (1983).
  • Encourages economic specialization, and
  • Fosters cooperation in harmonizing respective country’s trade regulations.

Of the 23 democratic Senators signing the letter, 13 are up for re-election in 2018. The House version did not contain similar language.   76 Senators did not sign the letter.

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Tim Cansler