Certain trade remedies insulate firms from needed competition

Economist Joseph Schumpeter’s concept of “creative destruction” is being tested as never before as President Trump enthusiastically deploys tariffs to protect less-efficient firms.

Alongside high profile episodes — 25-percent tariffs on steel and aluminum imports, plus threatened tariffs on $250 billion imports from China and $200 billion auto imports — the president champions so-called “trade remedy” tariffs on multiple products.

{mosads}Trade remedies, rightly applied, serve as a check on foreign actions that distort trade. They are tools for U.S. industries, companies and workers to combat deviations from obligations enshrined in bilateral and multilateral trade agreements.

Used correctly, trade remedies offset foreign dumping and subsidy practices and thwart infringements on intellectual property rights. Used incorrectly, they protect individual companies from market forces and inflict harm broadly across the economy.

A high-stakes case involving Uncoated Groundwood Paper, better known as newsprint, imported into the United States from Canada exemplifies the misuse of trade remedies.

NORPAC, a paper maker based in Longview, Wash., with fewer than 300 workers, has successfully petitioned the U.S. Commerce Department for anti-dumping and countervailing duties (AD/CVD) of up to 32 percent, on average, on Canadian newsprint.

NORPAC asserts that Canadian government support enables Canadian paper manufacturers to flood the U.S. market with newsprint at artificially low prices, “injuring” NORPAC. The U.S. International Trade Commission will investigate the injury claim this summer.

While awaiting the USITC’s report, scheduled for September, preliminary tariffs are applied on imports, damaging hundreds of newspaper publishers. It is truly regrettable that such “made to measure” AD/CVD duties can be imposed at the behest of a single producer.

NORPAC’s concerns about Canadian newsprint are not shared by the broader industry. The pulp paper industry in North America defies easy national characterizations. Companies in both Canada and the U.S. have facilities and operations on both sides of the border. 

In fact, the trade association for paper producers, the American Forest and Paper Products Association, opposes the tariffs. Legislation to put them on pause until the claims are fully investigated has been introduced by Senators Susan Collins (R-Maine) and Angus King (I-Maine), which is home to several paper mills.

The chief consumers of newsprint, not surprisingly, are newspapers. Aside from labor, paper is their biggest expense. Despite the economic factors that favor a digital format, many readers still prefer paper editions.

However, a sharp increase in the price of their biggest purchase forces publishers to cut back on the size of print editions and reduce staff. The longer this goes on, more newspapers, particularly small daily and weekly publications, will be forced to close.

The potential job losses at newspapers would be regrettable, not only for reporters and other employees but also for readers. Local journalists play an important role in keeping public officials accountable and shining a light on the challenges that towns and cities need to address.

Paul C. Tash, chairman and CEO of the Times Publishing Company, which publishes the Tampa Bay Times, summed it up in commentary this spring, stating, “…prices will go up. Jobs will be lost. Important stories will go uncovered.”

Job losses will not be limited to newspapers. Newsprint is used in publishing books, directories, advertising flyers and many other printed media. All told, over 600,000 jobs are tied to newsprint; if the tariffs remain in place, many of these jobs will be lost, compared to under 300 positions at NORPAC.

The expansion in international trade since the end of World War II has significantly boosted American living standards, but now the rules-based global trading system is being tested as never before. While newsprint is far from the largest challenge, it’s an important case.

The USITC should deny selective protection that would harm far more workers than it would help and undermine access to the printed word for all of us.

Gary Clyde Hufbauer is a nonresident senior fellow at the Peterson Institute for International Economics.