August 2019 Volume 1

MEMBERS SPEAK

Tariffs are the Right Answer By Willard Walker

After saving Western civilization in WWII, theUnitedStates focusedonhelpingwestern Europe and Japan rebuild their economies by implementing the Marshall Plan and promoting free trade. But countries found ways to game the trading system, and the expansion of trade has come at a tremendous cost to the American worker. Since the late 1970s, the American worker has seen almost no real income growth. After adjusting for inflation, today’s average hourly wage is about the same as it was in 1978. The damage to the American middle class accelerated after the U.S. allowed China’s entry into the World Trade Organization in 2001. China quickly broke its commitment to reform and become a market economy. China has exploited the WTO to run huge trade surpluses, steal intellectual property, coerce foreign companies into transferring their technology and subsidize domestic firms. India too deserves special mention and attention for its system of unfair trade practices and protectionist policies. India has played by its own trade rules for many years, and the situation looks to be getting worse, not better. An ever-growing list of U.S. industries have suffered grievous harm, including the forging and steel industries. Some domestic industries have been completely decimated, including textiles, wood furniture and the paper industry, to name just a few. Finally, at last, we have elected a President with the fortitude and independence to stand up for the American worker. President Trump and U.S. Trade Representative Robert Lighthizer have embraced tariffs to press our trading partners for fair, balanced and reciprocal trade. American workers can compete successfully against anyone if the playing field is level. But American companies have great difficulty competing against firms that

are subsidized by governments practicing state capitalism. American companies simply cannot compete against the Chinese government or the Indian government, nor should they be expected to. It would be wonderful if there were effective trade remedies available for American companies to pursue on their own. But except in limited circumstances, that is not the case. Filing an anti-dumping case or countervailing duties case at the ITC is not a viable alternative for the vast majority of U.S. companies injured by unfair trade. Such cases are enormously expensive to prosecute, take years to resolve and offer potential benefit only to producers of very high-volume products with significant market share. There are those who say, “Nobody wins a trade war.” That is not true. China has been waging and winning a trade war against the U.S. for nearly 20 years. The U.S. just recently decided to join the fight. Other critics warn that tariffs will push prices higher and hurt the American consumer. But these critics ignore that in the real world, much of the tariff cost is often absorbed by the exporter to remain competitive. Furthermore, importers are constantly making adjustments to counter any tariff impacts. If tariffs will result in higher prices to U.S. consumers, then why have long-term interest rates been dropping like a rock? Higher prices and inflation are not on the horizon. Finally, some claim tariffs are the wrong way to go after unfair trading practices and that we should let the WTO take the lead. But the WTO has shown itself to be utterly incapable of policing unfair trade. For instance, the U.S. auto tariff is 2.5 percent, Europe 10 percent, China 15 percent and India 125 percent. None of these tariffs violate WTO rules! Tariffs are the right answer for as long as other nations refuse to practice fair,

balanced and reciprocal trade.The president has imposed section 232 tariffs on imported steel and aluminum on national security grounds. Forgings are essential to our national security and critical infrastructure, and the 232 tariffs appropriately covered imports of aluminum forgings. But for some reason, steel forgings were left out. With FIA backing, an effort is now underway to investigate whether 232 coverage can include imports of steel forgings, as well. The Section 301 tariffs currently in force cover $250 billion of imports from China, including all forgings. These tariffs are absolutely necessary and should remain in place at current levels of 25 percent unless China agrees to the long list of changes sought by President Trump. These tariffs are the best leverage the U.S. has to persuade China to change its ways. The odds are not good that China will give up its mercantilist approach, however. The winner in all of this is the American worker. Under the leadership of President Trump, Democrats and Republicans are unified against unfair trade practices and are finally paying attention to the American worker. It is about time. The opinions in this column are those of the author only and do not necessarily reflect those of the Forging Industry Association, its executives or its members.

Willard Walker, CEO Walker Forge, Inc.

FIA MAGAZINE | August 2019 64