Trump’s Trade Deal with China Might Not Tackle Industrial Subsidies

Elizabeth Brotherton-Bunch

Elizabeth Brotherton-Bunch Digital Media Director, Alliance for American Manufacturing

We’ve been closely monitoring trade talks between the United States and China, and we’ve gone on record to note that there are a couple of ways things could go. The two countries will either reach a historic deal that requires China to play by the rules of global competition — or the agreement will be a dud, making a few superficial changes but mostly maintaining the status quo.

Well, score one for the status quo.

Reuters reports that “U.S. negotiators have tempered demands that China curb industrial subsidies as a condition for a trade deal after strong resistance from Beijing.”

Instead, negotiators are focusing on issues they see as more achievable, including ending forced technology transfers, strengthening protection of intellectual property and opening up China’s markets.

Look, addressing technology transfers and intellectual property is vital, and U.S. negotiators are right to focus on them. Ditto for further opening up China’s market.

But by abandoning the issue of industrial subsidies in these talks, the United States is giving a green light to China to continue to cheat the global trading system and put countries and companies that play by the rules at a disadvantage.

Case in point: Steel.

President Trump put a 25% tariff on steel imports in April 2018 in response to surging foreign imports. Now, you’ve probably heard about those "Section 232" tariffs — they’ve garnered a lot of criticism from the Acela Corridor set — but what is often missing from the conversation is that despite Trump’s bluster, there was a very legitimate reason why he issued those tariffs.

China’s government heavily subsidizes its steel industry, and China makes far more steel than it can use for its own purposes. But Chinese companies need to do something with all that extra steel, and so they dump it onto the global marketplace at rock-bottom prices, far below what companies operating in a free market can afford.

This gives China a huge advantage — its heavily subsidized companies don’t have to worry about making money, because their operations are subsidized by the government. As a result, Chinese steel flooded the global market, and a whole lot of that subsidized steel made its way to U.S. shores.

At one point, the flood of cheap Chinese steel imports exceeded the amount U.S. factories produced in an entire year. Tens of thousands of U.S. workers were laid off, and dozens of U.S. steel facilities shut down.

The Obama administration recognized this problem and issued tariffs on specific steel productswhile also urging China to stop subsidizing its industry. China even pledged to cut its steel production! (Spoiler: China did not.)

Enter Trump, who decided to send a message by issuing the 25% tariff. Since then, things have stabilized for the American steel industry, leading to an uptick in domestic production, 12,000 new jobs, and $18.2 billion in announced investments.

But the underlying problem remains: China is still subsidizing its steel and other key industries.

The tariffs might have stopped the flood of steel imports, but it is only a temporary fix, something United Steelworkers President Leo Gerard pointed out in March during the annual Congressional Steel Caucus hearing:

“The underlying problem of Chinese overcapacity continues to plague world markets and is a sword of Democles hanging over the future of our industry and those in other market economies. The 232 tariffs must not be discontinued, and they should be coupled with renewed efforts to reach multilateral disciplines on overcapacity, largely fueled by China which, in October, had the highest production levels on record.”

Which brings us back to the U.S.-China trade talks.

As AAM’s own Scott Paul recently wrote, Trump is facing a brief window in history when he has an opportunity to do something really big. The domestic economy is doing well, and the bumps caused by his trade fight with China — which not only include action on steel but also $250 billion worth of imports of Chinese goods — have been relatively minor, all things considered.

Trump fancies himself as the greatest dealmaker in the world, and his willingness to play hardball brought China to the table. Now he needs to follow through.

There’s a lot at stake in this deal, and Team Trump is right to demand more market access and enforced intellectual property rights, along with things like stronger labor standards for Chinese workers and stricter environmental controls.

But the deal will be incomplete if China is allowed to continue to subsidize its key industries, as now appears to be the case. If this is how we end up, it will turn out that Trump isn't much of a dealmaker after all.

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Reposted from AAM

Posted In: Allied Approaches, From Alliance for American Manufacturing

Union Matters

Federal Minimum Wage Reaches Disappointing Milestone

By Kathleen Mackey
USW Intern

A disgraceful milestone occurred last Sunday, June 16.

That date officially marked the longest period that the United States has gone without increasing federal the minimum wage.

That means Congress has denied raises for a decade to 1.8 million American workers, that is, those workers who earn $7.25 an hour or less. These 1.8 million Americans have watched in frustration as Congress not only denied them wages increases, but used their tax dollars to raise Congressional pay. They continued to watch in disappointment as the Trump administration failed to keep its promise that the 2017 tax cut law would increase every worker’s pay by $4,000 per year.

More than 12 years ago, in May 2007, Congress passed legislation to raise the minimum wage to $7.25 per hour. It took effect two years later. Congress has failed to act since then, so it has, in effect, now imposed a decade-long wage freeze on the nation’s lowest income workers.

To combat this unjust situation, minimum wage workers could rally and call their lawmakers to demand action, but they’re typically working more than one job just to get by, so few have the energy or patience.

The Economic Policy Institute points out in a recent report on the federal minimum wage that as the cost of living rose over the past 10 years, Congress’ inaction cut the take-home pay of working families.  

At the current dismal rate, full-time workers receiving minimum wage earn $15,080 a year. It was virtually impossible to scrape by on $15,080 a decade ago, let alone support a family. But with the cost of living having risen 18% over that time, the situation now is far worse for the working poor. The current federal minimum wage is not a living wage. And no full-time worker should live in poverty.

While ignoring the needs of low-income workers, members of Congress, who taxpayers pay at least $174,000 a year, are scheduled to receive an automatic $4,500 cost-of-living raise this year. Congress increased its own pay from $169,300 to $174,000 in 2009, in the middle of the Great Recession when low income people across the country were out of work and losing their homes. While Congress has frozen its own pay since then, that’s little consolation to minimum wage workers who take home less than a tenth of Congressional salaries.

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