Analysis
Updated
Truth, they reckon, is the first casualty in war.
But
in the case of the Trump trade tirade, truth decided the best course of
action was desertion, abandoning the campaign early without ever
looking back.Amid the chaotic about-faces, contradictory statements and abrupt policy changes emanating from the White House last week, a casual observer would have gleaned a single constant line; that American steel producers are struggling to survive.
According to President Donald Trump, America has been "ravaged by aggressive foreign trade practices".
"It's really been an assault on our country."A terrific sound bite, and a sentiment now ingrained into the global psyche. But like so many other utterances from Mr Trump, it bears only a vague resemblance to reality.
For the past two years, American steel producers have been raking it in and United States steel producer share prices have been soaring.
Since January 2016, US steel prices have almost doubled, just as they have across the globe, as global production tapered off, largely thanks to production cuts in China.
There's no denying that the incredible surge in Chinese steel production — which now accounts for 49 per cent of global output — during the past 20 years, and the ploy from the Middle Kingdom to flood the Asian region with excess supply during the five years to 2015, depressed global prices and threatened the survival of most international producers.
Our own Bluescope and Arrium were caught in the melee.
In the past three years, however, China has cut production by 15 million tonnes per annum. America too has cut. So has Europe and Canada.
The end result is that supply and demand are moving back towards equilibrium and profits are on the rise.
The manoeuvring from Washington over steel and aluminium — imposing tariffs of 25 per cent and 10 per cent respectively — tell you two key things about the Trump administration's attitude to global trade and diplomacy.
The first is that it bears a remarkable similarity to former president George W Bush's desperate attempt to concoct a narrative about weapons of mass destruction to justify the invasion of Iraq despite a complete lack of evidence of their existence.
Surging steel prices aside, when asked last week why he was targeting China over steel when it shipped less than 3 per cent of America's imports, the President responded that he simply didn't believe that figure, even though it was compiled by his own Commerce Department.
The second key message from last week is that America has turned its back on a global rules-based trade system, a system it created and nurtured through the establishment of the General Agreement on Tariffs and Trade and, since 1995, the World Trade Organisation (WTO)
Making America paranoid again
If there's one thing that Mr Trump has right, it is that he has managed to tap into the rich vein of discontent coursing through the developed world, much of it a backlash to the impact of globalisation and trade liberalisation.Economics text books are filled with mathematical formulae and graphs that provide overwhelming arguments about the benefits of free trade.
Societies that play to their strengths, that exploit their comparative advantage and produce what they are best at, trading with others for the things that they are not good at producing, are better off.
The theory goes that, with lower protection, businesses become more efficient, goods become cheaper and consumers benefit from lower prices. Unemployment is assumed away, as workers would shift to new, more efficient industries. Everyone lives happily ever after.
It's a neat theory and there is plenty of evidence to support it.
Since 1990, cars, electronic goods such as televisions, clothing and footwear — all now are much more affordable. Cheap imports from China helped kill the global inflation virus of the 70s, 80s and 90s.
But in their rush to accept the arguments about the benefits of free trade and global deregulation, economists and politicians ignored the costs.
More specifically, they ignored the disproportionate way in which the benefits would be spread.
The GDP numbers told stories of phenomenal overall growth. But in developed nations, as industries pulled stumps and relocated, entire communities were left behind.
And as the pace of change accelerated, as protection barriers were dismantled, social dislocation worsened.
The assumptions about zero unemployment and a permanent rise in wealth simply didn't equate with reality.
On almost every measure — health, wealth and education — American workers' living conditions have declined, a situation that has been replicated across Europe and much of the developed world.
Wealth disparity has intensified as well-educated professionals profited from globalisation while working class families were left behind.
The backlash has now spilled over into domestic politics, evident in the US, Brexit, and elections in France, Greece and Italy.
A similar mood of discontent over globalisation swept through Europe in the early part of last century, resulting in trade wars, depression, global conflict and ultimately the fracturing of Europe.
The question is: Will Mr Trump's push to protectionism wind back the clock and solve the problems that have arisen from the rapid push to globalisation?
Unfortunately, the answer is no. In fact, he's likely to make the situation a whole lot worse.
Trump just killed the WTO
Late last year, the Trump administration pushed through a tax "reform" bill that overwhelmingly delivered disproportional benefits to the well-off, while denuding the federal coffers of vast amounts of revenue, just as it planned a big infrastructure spend.The net result? It wasn't just a slap in the face for ordinary Americans.
There was also a projected massive blowout in the US budget deficit that is likely to flow through to a huge lift in the trade deficit if US private investment accelerates as expected.
And there's the irony. Mr Trump hates trade deficits and he's shaping up for a trade war to prove it.
But he's just enacted a policy that will make America's worse, proving he has no grasp of macroeconomics or what drives the global financial system.
Compounding the problem is his shift towards protectionism. For just as economists ignored the costs of globalisation, the President's last remaining economic advisors in the White House, appear oblivious to the costs and dangers of sharply reversing course.
The price of steel, already on the rise, is likely to become much more expensive, particularly in Canada — the biggest foreign supplier to the US — cannot secure an exemption through its North American Free Trade Association negotiations.
That will push the cost of goods manufactured in the US, which may see calls for even greater tariffs on a wider range of goods and services.
Unless those price hikes are matched by wage rises, US consumption will drop. Ultimately, US competitiveness will suffer.
Tactically, Mr Trump's policy has been nothing short of a disaster.
If China is his ultimate target, he's managed to alienate his neighbours and closest allies immediately before launching a full scale trade attack on Beijing over intellectual property theft and a range of other issues.
China has managed its phenomenal rise by pursuing policies that should never have been allowed under the WTO.
Since China's admission in 2001, the US has done precious little to haul Beijing into line, at least until the Obama administration upped the ante by taking action over aluminium imports.
Rather than ramp up the pressure on China through the WTO, to operate within a legal framework, Mr Trump instead has signed its death warrant by pursuing tariffs via a long disused clause on national security, that renders the WTO powerless.
It is a high-risk move that may win him some approval across the US rustbelt. In fact, it seems designed purely for domestic political consumption.
Longer term, however, it won't fuel an American economic revival.
Inflation, maybe. Lower economic growth, almost certainly.
A more insular and unstable world, absolutely.
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