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Hello from Washington, where President-elect Joe Biden’s team is quietly rumbling on the task of appointing new administrative officials, even as they wait for Donald Trump to concede the election.
A new US sales representative is usually not one of the first appointments so we’ll have to wait longer. In the meantime, however, the Biden team has a ton of immediate trading issues to think about. One of them is the US tariffs on steel and aluminum – especially for Europe – which are our subject Main piece today. Our Person in the news is Simon Coveney, Ireland’s Foreign Secretary, during our Chart of the day comes from Martin Wolf’s article “Why inflation could be on its way back”.
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Many economists have argued that tariffs have resulted in overall job losses in the US
If President Donald Trump’s trade policy had to be summed up in one word, it would be “tariffs”. During his tenure, US tariffs were imposed on imported goods valued at billions of dollars. Even more tariffs were threatened but never implemented, such as for German vehicles.
Incoming President Joe Biden inherits many tariffs. Trump used unusual means to apply them, implementing outdated laws for political purposes today. If the Biden government wants to remedy the situation with European allies, the steel and aluminum tariffs according to § 232 for Europe must be observed immediately – ideally to protect the national security of the USA.
These pose a mystery – they create a diplomatic problem for Biden, but he is supported by some key groups domestically. Telling allies that you consider them unreliable and that they may not export goods to you is only to annoy them. For this reason alone, there are Democrats who believe that steel and aluminum tariffs should be removed.
Then there is the World Trade Organization. Biden wants to help fix and revitalize it as it hobbles along with no confirmed director general or a functioning appellate body. But he must make sure his plans are not drowned out by American skepticism about the existence of the WTO, which both Republicans and Democrats see as soft on China.
Both China and the EU have filed lawsuits with the WTO against US national security tariffs. Hearing them, the WTO has to decide what is a legitimate national security interest and what is not – something that would piss off bipartisan lawmakers who would undoubtedly see this as an affront to US sovereignty. Great diplomatic efforts and a willingness to lift these tariffs, at least for Europe, are required to prevent the WTO from being used on the ground.
Domestically, the political sentiment on tariffs is mixed. Much of US industry has struggled against them because most of the metal industry imports and processes the raw materials. The higher import costs depress the margins. On the flip side, many of the big unions have both backed the tariffs and backed Biden, albeit anecdotally their members were divided. The AFL-CIO with 12.5 million members supported the introduction of steel and aluminum tariffs and supported Biden. United Steelworkers has endorsed steel and aluminum tariffs and also endorsed Biden.
That doesn’t mean that the tariffs are popular with all workers. While helping to protect crude steel and aluminum producers from import competition, many economists have argued that tariffs overall resulted in job losses and not job creation as input costs were higher and retaliatory measures were taken.
However, economic sense and politics do not always match when it comes to tariffs. Nobel Prize winners Esther Duflo and Abhijit Banerjee point out in their book Good Economics for Hard Times that there is a huge gap between what economists think and what the general public thinks. A 2018 poll by Chicago Booth University asked senior business professors from across the political spectrum whether they thought US tariffs on steel and aluminum would improve American well-being – 93 percent either “disagreed strongly” or just disagreed with tariffs improving the lives of Americans. The rest didn’t answer. Duflo and Banerjee said they asked the same question in a separate poll of a representative sample of Americans – a third said the tariffs would improve the welfare of Americans.
There is also a gap between the way economists think and the way trade negotiators think. Economists tend to do what is most useful economically, but negotiators tend to ask what they are getting in return for removing tariffs – even when they are not in the best interests of their country.
Whichever view is ultimately taken, the new administration will be able to stand still for some time. It can say that it will have careful, evidence-based policies and that it needs to carefully examine the steel and aluminum tariffs that it can blame Trump for the time being. The status quo is to leave them in place. The tariff man may leave the White House – but the tariffs will continue to exist for a while.
Are we facing a new era of unexpectedly high inflation and not the usual below-target inflation? Many reject this view writes Martin Wolf. But the boy who cried wolf was right last time. A book that just comes out, weeps persistently Wolf. Specifically, it says that with today’s fiscal and monetary generosity, “like after many wars, inflation will rise, likely more than 5 percent or even on the order of 10 percent in 2021”. That would change everything.
Person in the news
Irishman Simon Coveney says the Brexit talks need to be resolved this week. © Yves Herman / Reuters
Who is it?
Simon Coveney, Ireland’s Foreign Minister
Why is he on the news?
Coveney warned British Prime Minister Boris Johnson this week that the open questions in the Brexit talks “must in principle be resolved this week”.
Mr Coveney told Sky News, “If you want to use sports language, this is moving week. We have to make great strides this week, hopefully we have to basically solve the big problems this week. ”
He also reiterated that a trade deal would not be approved by the EU unless Johnson dropped his threat contained in his Single Market Act to breach the commitments to Northern Ireland in his withdrawal agreement.
Britain and the EU can see the “landing zones” for a free trade agreement, according to Ireland’s Prime Minister Micheál Martin.
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