Real steel

"Free trade is good for you, and protectionism is bad. It’s as simple as that"

Tim Congdon

A US Steel plant in Gary, Indiana, 1973: Trump betrays his senescence in his steel obsession (Environmental Protection Agency)

Steel production used to be a basic measure of industrial might. Sixty years ago — when many of the world’s leading intellectuals expected the Soviet Union to surpass the US in economic terms — they would routinely point to surges in Soviet steel production as another Gosplan triumph. When President Trump tweeted on March 2, “If you don’t have steel, you don’t have a country,” he was betraying his senescence as well as his prejudices.

The USA’s imposition of 25 per cent tariffs on imports of steel was the main measure so far implemented in the inward- and backward-looking “America First” mercantilism that was one theme of Trump’s presidential campaign. He believes that “trade wars are good, and easy to win”, and that “we must protect our country and our workers” because “our steel industry is in bad shape”. Senator Sherrod Brown of Ohio applauded his move, as — in Brown’s words — too many steelworkers lived “in fear that their jobs will be the next victims of Chinese cheating”.

So China — rather than the Soviet Union — has become the bogeyman and rival. As it happens, the US imports more steel from the European Union, Japan and South Korea, all of which are military allies, than it does from China. The impact of Trump’s protectionism will be greater for them and retaliation is inevitable, even if it will be largely token in character. And how much will the Chinese care?

The key point is that China’s industrialisation since the late 1970s has been so prodigious that the world market is a sideshow for much of its steel industry. In 2017 China’s steel production was over 830 million tons, compared with a world total of almost 1,700 million tons. About 100 million tons was exported, only a tiny fraction of it to the US. The second and third largest producers were far behind: Japan with 105 million tons and India with just over 100 million tons. The US came fourth, with 81.6 million tons. (Russia was next, at 71.3 million tons, which may be of interest to those nostalgic for Sputnik, E. H. Carr and that lot.)

These numbers show that the overwhelming purpose of Chinese steel production is to meet internal demand, not to smother foreign supply. Sure enough, the growth of steel-making capacity has been excessive and steel plants are being closed down, not least because of the pollution and environmental degradation that they cause. However, the notion that Trump’s tariffs will do much harm to China, and make “America first” again, is crazy. With US production less than 10 per cent of China’s, most of the Chinese industry would carry on as before if the US were to stop importing steel altogether.

The world changes fast. In the heyday of Jean-Paul Sartre and the Frankfurt School (and Gosplan and Sputnik), China had a steel industry and Chairman Mao had a famous Little Red Book. Silly Cambridge economists such as Joan Robinson could be found to extol the virtues of Maoism, but they were not in a majority. In truth China was poor and irrelevant, and did not engage in international trade and finance. It was not just inward-looking and protectionist, but autarkic. No one in the American rust belt complained about Chinese cheating.

After Mao died in 1976, the very different Deng Xiaoping emerged as the dominant figure. Never an ideological Marxist, he was acutely aware of China’s backwardness relative, for example, to both Hong Kong on its doorstep and Singapore not far to its south. Deng visited Singapore, and was stunned by its prosperity, modernity and order. Only a fool could overlook that the economic systems in Hong Kong and Singapore were utterly different from the Maoist template. Private property and freedom of contract were protected under the rule of law, while free trade was the defining feature of the city-states’ international economic relations. Astonishingly, in the late 1970s exports from the tiny British colony of Hong Kong exceeded those from the People’s Republic, the nation with the world’s largest population.

Deng decided to imitate Hong Kong and Singapore, and in 1980 set up Special Export Zones as virtual replicas. This was a major step towards one of the most radical trade liberalisations the world has ever seen. China lowered tariffs and abolished quotas over a 30-year period, in order to welcome products from the rest of the world. In other words, it pursued a policy the exact opposite to Trump’s today. Whereas Trump seems to believe that economic greatness comes from blocking imports and cutting domestic producers off from foreign competition, Deng realised that progress would follow China’s opening-up to foreign goods, investment and ideas. Nowadays incomes per head in China are 20 times higher on average than 40 years ago, China’s exports of goods are the largest in the world, and “Made in China” is the most common three-word phrase in the English language. Free trade is good for you, and protectionism is bad; it’s as simple as that. Trump’s ignorant and foolish protectionism belittles and marginalises America, and must be condemned unreservedly.

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