Steel Tariffs

By Mike Koetting May 9, 2021

Okay. This doesn’t sound like the usual stuff I write about. But it got my attention because it Is such a technicolor illustration of how much more difficult real policy is than policy theatre, in large part because things in the real world turn out to be very interconnected. The topic also begins to raise some necessary questions about what kind of global institutions we might need for the future of the species.

Background

At the end of World War II, the U.S. was the only reliable source of steel in the world. Even while serving as the world’s steel mill, this was never as large an element of the actual work force as it was the American labor psyche. Steel’s direct share of the labor force topped out in the 1950’s at just over 1% of the civilian workforce. American steel continued to dominate in the world market in the following decades, but as technology changed, employment started to slip—both because new approaches required fewer workers and other countries were getting into steel production, thereby lowering demand. (Ironically, other countries found it easier to adopt new technologies because they were essentially starting over from scratch. Japan became a larger source of steel used in America than domestic production.) A CNN/Money report notes the decline in the importance of steel as an American product corresponded with other changes in the economy.

…U.S. Steel was dropped from the Dow Jones industrial index in 1991 after 90 years. Disney joined the index at the time, as did JPMorgan, which is ironically a Wall Street firm named for the founder of U.S. Steel. Bethlehem Steel was the last steel company to fall out of the Dow in 1997, when Walmart, Hewlett-Packard and Travelers insurance were added in.

At the beginning of this century, China began a build up in steel production that has dwarfed American steel. This build up, achieved with material state subsidies, enabled China to flood the market with less expensive steel, further stressing American steel production.

Source: World Steel Association

In 2018, then President Trump invoked the “national security” clause of the 55 year old Trade Expansion act to levy a 25% tariff on steel and a 10% tariff on aluminum. His basic argument was that this would strengthen the American steel industry and thus grow American employment while reducing reliance on foreign steel, particularly from China.

While the assessment of these tariffs is complicated by the disruption of the pandemic, there is general agreement that, despite some small successes around the edges, the tariffs have not substantially achieved these objectives.

  • Investment in American steel has not increased in any material way and American steel plants are still running below full capacity—let alone adding new capacity. While there have been substantial increases in the profitability of the remaining American steel companies recently, it has been as a result of consolidating around fewer big players and increasing prices.
  • At best, pre-covid employment increased by two or three thousand (out of workforce of 160M). These are certainly better paying jobs than many others, but that is less because they are in steel and more because the steelworkers have a strong union.
  • Given the above, the extent to which the tariffs have improved American’s security situation with regard to steel seems minimal.

Conversely, there is general agreement that the tariffs have contributed to snarls in American supply chains and have increased costs throughout the economy. They have also adversely impacted employment in sectors that rely on steel products—by making American products that use steel more expensive. One paper from the Federal Reserve Board  estimates 75,000 fewer jobs in related manufacturing than would have been the case without the tariffs. There is particular concern that if the Biden infrastructure plan is adopted, difficulties obtaining steel could lead to major delays.

The above notwithstanding, early signs are that the Biden administration is in no hurry to end the tariffs.

How should we process this?

Reasons

While I am not privy to the inner workings of the Biden administration, I believe the primary reason for continuing the tariff is broadly political. A Republican caricature of Democratic politics is that they are all about the cosmopolitan elite and minorities but willing to abandon American workers to global markets. The steel tariff is a bit of an antidote. There is also the realpolitik that while it may be only 140,000 steel workers, it becomes a big deal when you count families, friends and communities concentrated in a few states where 25,000 votes can mean 20 electoral votes.

This tariff needs also be considered in a broader global context.

One obvious set of concerns are the implications for national security. At some level of abstraction, it would seem problematic to be dependent on foreign suppliers for a resource as vital as steel, particularly if one of those suppliers is a potential adversary. I suspect, however, this abstract concern is rendered incomprehensible by the actual details. Steel is not simply steel. There are now an infinity of blends, alloys and techniques producing specialized products that are necessary for many applications. I doubt simply producing the same tonnage of steel as aggregate national demand—which we more or less do—meets our security needs. One would have to know much more about the details of steel production to know how much and what kind of steel we would have to produce to actually meet these needs. But I suspect to do so would require a much greater investment in steel than is likely given the rest of the world is willing to offer a wide variety of steel at lower prices.

The specific behavior of China raises a second set of concerns, questions that go to the core of how to organize world trade. The World Trade Organization is an attempt to order world trade markets on a loosely free market basis. China, although a member, doesn’t play by the WTO rules, and nowhere more egregiously than in steel. When Trump imposed the tariffs, he had particularly targeted them at China. The Biden administration has lower ambitions, but appears to see the tariffs as something that might get China to be more cooperative in trade talks on steel that have been going on for 5 years without much progress,

A third area of concern, although touching on an entirely different dynamic, is the role of these, and potentially future, tariffs as part of an environmental tool kit. At least one Congressman has proposed that rather than end these tariffs, we should reconfigure them to discourage imports with a high carbon footprint. Whether this is a real option or not, there is an obvious appeal to trying to create incentives to lessen the carbon impact while not overtly discouraging global trade.

Where Does This Leave Us?

Pretty much nowhere. There is virtually no one who thinks the actual results of these tariffs is a good deal for Americans generally. But neither is there much enthusiasm, outside of some free trade zealots, for ending them. No one wants to be accused of letting American jobs go overseas, of endangering America’s security, or of caving to the Chinese.

One can imagine a more helpful set of policies—careful support for aspects of steel actually critical for national defense, tariffs based on carbon-footprints and a real program of support for workers to reduce the sting of jobs leaving for elsewhere. But I suspect it will be much easier to simply leave the tariffs in place.

In the meantime, I wonder what happens to the broader questions of how to create a better world. For openers, it seems axiomatic that we need global solutions to solve the problems of the environment. But there is no way of decoupling environmental issues from economic issues. If we want to save the planet, we need instruments of global economic cooperation. It is not likely the old imperatives of the WTO are that helpful since they are designed as ground rules for competition not cooperation and so heavily favor corporate influences.

 Of course, the more fundamental problem is that there isn’t much political infrastructure that would allow countries to think about how to best rationalize the manufacture and distribution of products in global terms rather than in national terms. Or in sustainable terms rather than maximizing terms. Moreover, since some countries already have so much higher standards of living, they fear “cooperation” will end up threating their way of life, a concern that Trump played in the U.S. like a virtuoso.

I think we need to be putting more thought into developing radically different models of economic cooperation than tinkering with tariffs that, in today’s world—global whether we like it or not—are as likely to do harm as good.

The World Needs More People? Really?

By Mike Koetting April 18, 2021

Several weeks ago, a headline in the Chicago Tribune caught my attention: “What the world needs now is more humans.” My antennae went up. It was so counter my basic belief, I was compelled to read it.

I was not even a little convinced. But it raised enough questions about the future to be interesting.

Facts

Let’s start with a few basic facts. You probably know world population has been on an exponential growth curve for some time. But have you really stopped to examine that curve? World population has increased since 1900 almost five-fold, from 1.65B to 7.7B. Even with few other facts, this should cause at least an eye-brow raise. It’s hard to imagine systems that can have five-fold flexibility without getting into trouble.

Not surprisingly, this is accompanied by a commensurate demand on all the other resources of the world.

Source: Population Matters from World Wildlife Federation data

The above chart hints at the environmental problems this is causing. The details are even more sobering, whether you’re talking about species extinction, melting ice-cap, pollution, or pick your poison.

What’s With This Article?

Tyler Cowen, the author of the article, does not provides much compelling argument to support the claim there is something the matter with lower birth rates. By his own admission the crux of his position is that he laments the “failure to take full advantage of the planet’s capacity to sustain human life.” This is a stunningly abstract concern, particularly given the very real possibility that we have already exceeded the planet’s longer-term capacity to sustain human life.

From one aspect, therefore, this article is more deserving of derision than commentary.  But my second and third thoughts were on the issues raised by the underlying patterns of population changes. Advanced economies are already experiencing fertility rates below replacement levels. Thus, absent immigration, they will see populations decreasing in the foreseeable future. Most of Asia—to my surprise—isn’t far behind, as is Latin and Central America. While this scarcely leaves me longing for more population growth, it is worth some thought as to what are the impacts of such a powerful dynamic running out of steam.

Before getting carried away, however, we should keep in mind that many of those impacts are a bit distant. There will be little to no impact on resource consumption in any relevant time frame. For openers, even with more modest fertility rates, population will continue grow for at least 50 years because of the number of potentially fertile women already on the planet. Global population will probably exceed 10 billion before we see the total number decreasing.

Moreover, so much of recent population growth has been in countries with much less resource consumption, even substantial drops in those populations would in itself have modest impact on global human consumption. Over a longer term, reducing world population will have a favorable effect on resource consumption, particularly since some of the largest reductions are in countries that are working on increasing resource consumption to improve their quality of life toward the standards of developed countries. But these changes are not going to reduce the need for considerable, more direct reductions in resource use, particularly in those nations using the lion’s share of resources. There is no getting off the immediate environmental hook from population changes.

This being said, given the global diversity in starting spots and intensity of trends, some effects will be more immediate and some will be in different directions.

Source:  United Nations, World Population Project, 2019

While these are projections, and include ranges of likelihoods, over the past 70 years or so, these projections have been relatively accurate. Even so, rojections for 80 years in the future leave room for interventions. But, absent catastrophic events, population trend changes require time. Nor is there any particular reason to believe that the fundamental factors driving the projected changes are likely to reverse. For instance, there are virtually no examples of fertility increasing as economies grow, medical care improves and women become more educated. It is prudent to assume these projections are very plausible.

In that case, growth in Africa will continue to top the chart, particularly Africa south of the Sahara. It is projected that by 2100, five of the ten largest countries in the world will be in Africa. (Only one, Nigeria, is currently in the top ten.) Unless conditions there improve—more economic growth and greater political stability—pressures for migration will continue to grow. Europe in particular should be thinking very hard about its response Migration issues could easily dominate mid-century European politics as more and more people try to get there from Africa. In fact, Cowen notwithstanding, it would be a useful investment for the entire world to foster a better Africa and slow population growth.

At the other end of the spectrum, are the areas that will—if projections are roughly correct—experience major short-term changes in the other direction. Eastern and Southeastern Asia is projected to see a 5 percent increase between now and 2050 and then a 25% decrease from the peak by the end of the century. This is driven by China, which could see almost a 30% drop in population. It is hard to image that changes of that magnitude wouldn’t be destabilizing, economically and politically.

Stable or declining population, at least in an era of advanced health technology, will also rearrange the existing population since the change is coming not from an increase in relative deaths, but from a decrease in births. This skews the population older, which creates difficulties in making the society work. Japan is already being walloped by this shift in their society. China is starting to see it, but is till 30 or so years away from its largest impacts.

All of which raises the question of whether immigration will be seen as something potentially useful in maintaining a country’s economic base, even as it threatens its cultural homogeneity. Neither Japan nor China has any history of immigration as a constructive force. So it is not obvious how they will react as it becomes harder and harder to support aging populations with a decreasing working age population. Maybe the future of automation taking away human jobs is something necessary to support aged populations.

A shift toward an older population is an issue even in countries like the US that are not necessarily experiencing a major population drop. Like every other developed country, fertility rates among native born citizens continue to drop. While the measure of fertility rate is surprisingly complicated, it is safe to say that US birthrates are at some of their lowest levels and materially below the replacement level. This is shifting the population older, which creates challenges.

For instance, in 2010 there were seven potential family caregivers for every 80-plus year old. By 2030, there will be only four. This is also reflected in the decreasing proportion of workers available to pay for Medicare. In 1980 there were four people of working age population for every Medicare recipient, By 2040, there will be only two for each Medicare recipient.

The US could consider increasing immigration to address some of these changes.  Unlike Japan, the US has a robust history of supplementing native born population with immigration. But in addition to the political problems, there is a logical problem. As long as fertility rates remain low the problem feeds on itself because people who are initially young immigrants will eventually become old Americans. (Historically, immigrants have higher fertility than native-born Americans, but eventually wind up with the same fundamental patterns. Of course, pushing a problem out for a generation or so still has advantages.)

In short, although world population will probably stabilize by the end of the century, we are still faced with serious environmental problems. In the meantime, the unevenness in population changes will create local problems that will undoubtedly spill over into other areas. It seems to me all this suggests a more global approach to both the issues of environmental and population changes would be useful. I would, however, not recommend anyone hold their breath on that happening.

It’s Too Late to Start Yesterday

By Mike Koetting April 4, 2021

The media is awash with stories about the border crisis, specifically the surge of migrants seeking to enter the United States at its southern border. For the most part they have been fairly good in reporting the humanitarian toll of the crisis and also putting it in the context of larger immigrations trends, in this case the acceleration of a surge that actually started a year ago, while Trump was still president.

However, the media has been slower to point out that most of the political responses, on all sides, are a form of Kabuki theatre. In truth, there really aren’t any good solutions in the short term. Things that might have been “solutions” are 25 years in the rear-view mirror. Which is the point of this post: big problems require solutions that are big—not simply in terms of dollars but in terms of time. Some things simply require elapsed time to get accomplished. You can’t change the amount of time required for a pregnancy by adding more resources.

The current border situation is a technicolor reminder that things can get very ugly if society tries to ignore its way out of problems, particularly those that take time to solve.

Time Has Limited Today’s Options

The main limitation in addressing the trouble at the border is that the causes of the current surge have very little to do with current American policy. They are the consequence of policies pursued by internal and external actors over many years. The result are conditions, particularly in three Central American countries—Honduras, Guatemala and El Salvador, that people find intolerable. Extreme poverty, blocked mobility, endemic violence and the gangs that produces, failed governments, persecution, sexual exploitation, climate change, hunger and, now, the economic fallout of the pandemic. The stories that a great many of these migrants tell are heart-breaking stories of people running for their lives. As León Krauze says:

People from Guatemala, Honduras and El Salvador don’t migrate in search of a better life. They are looking for a shot at survival. If the alternative was famine, gang violence, kidnapping, rape or sexual slavery, wouldn’t you bet it all on the journey north?

The main question left to the US is how to address the people showing up. While this is a serious problem deserving of public consideration, for reasons given above, it doesn’t address the underlying issue. And the underlying issue limits even the options available to handle people showing up at the border. If the US were to simply accept all people seeking asylum, it would result in an even larger flow of people seeking asylum and, in short order, the total collapse of border security, not to mention engendering terrific political backlash.

At the other extreme, there is no reason to believe that a return to a scorched-earth, Trumpesque policy would resolve the problem. It would probably have some effect on the flow, but, as Mexican-American journalist Alfredo Corchado points out, even when Trump was president there was still flow because migrating is seen as a matter of survival. In his estimate, the primary effect of harsher policies at the border is simply to drive up the price of trying to migrate. He observes that the traffickers look for the “unintended consequences” and will find a way to bend whatever we throw at them to increase their profit because the demand is not a function of price.

Whatever the administration, the reality is they will be trying to administer an overrun, nonfunctional system. With investment—and time–we can develop more humane conditions for holding and sorting people, something we do not currently have. For a while people were simply being returned to Mexico where they faced situations as deplorable was what they left. More recently, Mexico has stopped allowing the return of these migrants into Mexico and the system is so overrun that many of these people are simply being released in this country with instructions to present themselves to an Immigration Center. It is not clear what the long-run impact of that will be, but it is hardly an orderly process.

Would-have Been Solutions

There will always be difficult decisions to make because of the economy disparities among these countries. But those decisions could be made in a deliberate way with relatively clear conscience if they are not being precipitated by people whose very survival is at stake. In the converse, as we are now experiencing, is difficult to view what is happening with equanimity. Not only does it provoke guilty consciences among individuals, it is dangerous when a country becomes so calloused that the stories of the current asylum seekers do not move them. It promotes a disregard for equality of human opportunity that can rot the entire society.

Decisions should have been made years ago that would have promoted development in these countries very different from what actually happened.

This is not to say that would have been easy. Over and over, we have proved that nation building is not a simple undertaking. But it would be a serious paucity of imagination to not believe we could have done a better job in these countries, countries where we have been more than willing to intervene when it suited other interests.

What would it have taken? Some substantial material investment. But that would have been affordable, particularly if spread over time. Far more important, and more difficult, was how that investment would have to be made. It would have required approaching investments with a commitment to human rights not necessarily embraced by the ruling elites of those countries and even at odds with the business interest of American companies. It would have also required recognizing evolving environmental factors and focusing on strategies that were long-term sustainable

Crucially, it would have required a consistency of effort over a protracted period of time. Democratic institutions, necessary for democratic societies, can not be mandated into existence. The forms can be mandated. But absent an underlying democratic spirit, it tends toward play-acting.

What is necessary for a democratic spirit? Broadly, a commitment to the rule of law less as a specific set of rules to be gamed to your advantage and more as a set of guidelines by which a society achieves the necessary balance between individual rights and common good. It also requires some trust that social institutions will work more or less as designed to produce a degree of social equality.

Of course, you don’t need a Ph.D. in Political Science to realize that not only would it be brutally hard to get American political support for a sustained effort to assist these countries in developing new political cultures, but also that these very underlying values are proving difficult enough in the US at the moment.  Fair as is the latter, it is also fair to recognize our relatively good history at getting this right and that we are hopefully we on a road to revitalizing some of those virtues. Moreover, the other option—the one we willy-nilly chose—yields lousy results.

Back to the Obvious

The border crisis is just one of the issues confronting America, not even one of the biggest. Addressing income inequality, providing for an environmentally sustainable economy, and creating social arrangements that integrate rather than divide the society are the foremost American challenges. My lesson from the crisis at the border is that these issues must be addressed now—but with a long term perspective. All of these issues will take time to resolve, possibly generations.

The future is in trouble if we either fail to act now or fail to sustain effort. It is disheartening, for instance, to realize how much time we have lost in addressing environmental issues. Each year of flabby efforts makes the needed lift that much larger for future years.

Twenty years ago, there were plenty of people pointing out that if we let Central America slide into chaos, we would face the problems we face today. But the problem seemed minor and far away. So we ignored it. But, as we have seen, faced with existential threats, people will bring those problems to our font door. Wherever we live, if we don’t start making material progress on the big issues facing our society, the fall out will wind up on our doorsteps.

Time for Worrying Is Over–Get Rid of the Filibuster

By Mike Koetting March 21, 2021

The American Rescue Plan is law. Very good. But what now? It passed with zero Republican votes and we have shot our Budget Reconciliation bullet for the time being. Given lack of Republican interest in engaging, do Democrats just spend the rest of the year making speeches about policies that aren’t going to happen. Faced with Republican opposition to whatever is proposed, do we just roll over?

I was initially wary of attacking the filibuster on the grounds it would even further deepen the divide. But the reality is that even if a substantial majority of the population supports them, action on voting rights, immigration or climate will be impossible under current Senate rules. Our choice is to eliminate the filibuster or give up on moving political conversations from culture wars back to policies. Capitulate or get rid of the filibuster. The latter, on reflection, I have come to see as not only necessary politics, but good policy as well.

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Strategy for the Democrats

By Mike Koetting March 7, 2021

Despite winning the presidential election and controlling both houses of Congress, the short term for Democrats is worrisome. The margin in both houses of Congress is thin, incumbent parties don’t usually do well in mid-terms, and Republicans have many structural advantages.

I believe Democrats need a three-prong strategy.

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Enough Short-Sightedness to Go Around

By Mike Koetting February 21, 2021

From a blog-standpoint, the weather-related debacle in Texas offers as much low hanging fruit as a frozen grapefruit orchard.

But I want to address what I see as the ultimately underlying problem—democracy. Okay, That’s a solution as well as a problem but we better start off with an honest assessment of the problem. People like low energy bills. They really like them in Texas where temperatures and humidity make for extremely uncomfortable summers. (Baseball great Stan Musial described his time in the Texas minor league as playing in three seasons–summer, July and August.)

Texas politicians recognize that. So they give the voters low energy bills. While comparing energy costs across different circumstances has pitfalls, one estimate is that Texas per unit energy costs to consumers are about 50% lower than the rest of the country. Which is a very good thing if you are going to use a lot of energy.

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Rules Work….Mostly

By Mike Koetting February 7, 2021

The pandemic has a way of putting a spotlight on things that otherwise are sufficiently in the background that we don’t have occasion to think about them.

Given the recent accounts of various entities trying to create operational rules for distributing vaccines, I started thinking about the nature of rules themselves. Not exactly the question of how to distribute vaccines—although that is of course interesting—but more the underlying nature of rules. I was struck by the fact that whatever the choice, it would be imperfect. Not just because there are arguments for alternative choices. There is also the reality that the very nature of making rules for vaccine distribution will no doubt create some individual situations that, from other perspectives, seem patently nuts.

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The Impeachment Trial

By Mike Koetting January 24, 2021

This has been a hard blog to actually get posted. It is the fourth one I have started in the new year. Reality has simply moved too fast. It is also the case that some things on my mind were well stated by others. Two articles of particular merit are Timothy Synder’s piece in the New York Times and Dahleen Glanton’s column in the Chicago Tribune, which was like she had bugged my brain. While these are both behind paywalls, I suspect those of you who want to chase them down will find a way.

But today I want to reflect on one particular fallout from the craziness at the Capitol—the impeachment trial of Donald Trump. I am not sure this is a good idea.

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Is There a Bigger Policy Issue than Jobs?

By Mike Koetting December 21, 2020

Today’s post had two inspirations—the “In the Weeds” podcast interview of economist Karl Smith and a YouTube video of a discussion between Van Jones and S.E. Culp hosted by David Axelrod at the University of Chicago Institute for Politics. The first was done just after the recent election and the latter is from early 2017.

In both discussions the issue of jobs was front and center. This isn’t surprising. In the broader human vista, how people work not only defines “the economy” but it defines the nature of the entire society. While it is possible to think about “non-work” activities in a society, we all realize that the economic realm so heavily dictates the terms of the rest of life that the difference is reflective rather than fundamental. What seems to be most fundamental is having—or not having—a job.

This is why discussions about “the economy” quickly become discussions about jobs. Jobs are deemed crucial because, in an instrumental sense, a job is a gateway to the sharing of society’s resources. But that’s tied to an overwhelming moral element. A job is how we decide who is contributing and who’s a slacker, who’s worthy and who isn’t. At some primordial level we still believe that doing the work of society is the most important part of participating in that society.

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Healthcare Realities Trump Rhetoric

Maybe There Are Other Opportunities

By Mike Koetting December 2, 2020

The bitter fight over the ACA was never a fight about healthcare policy. The healthcare plan that Obama proposed was based on the plan developed by the American Heritage Foundation for Bob Dole to offer as the Republican alternative to the Clinton plan. It was actually implemented by Mitt Romney in Massachusetts and universally considered a success. The issue was always whether the Republicans were going to let the Democrats implement it.

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