Letter: Why Trump is right on steel and aluminum tariffs
St Augustine, FL
On Friday night while driving to Mar-a-Lago, I listened to economics professors on NPR pontificate about how the Trump tariffs were terrible for our economy. On Saturday I listened to President Trump explain his reasoning behind his efforts to protect American steel and aluminum production.
On Sunday I recorded and listened to every major television talk show. Other than Wilbur Ross and Peter Navarro, nobody seems to understand manufacturing economics. I will explain why the President’s tariffs are good for America.
As a trained economist, I’ve been a manufacturer for 38 years. I use aluminum, including aluminum that is milled in Italy and China. I also use aluminum and steel to manufacture machinery. I learned manufacturing accounting after my education as an economist.
The pundits and economists don’t understand manufacturing. The plants that make steel and aluminum are expensive fixed assets. A portion of the cost of every pound of steel and aluminum goes toward repayment of the huge capital investment to build the factory and the ongoing expense to maintain the equipment.
On Fox News Sunday, Peter Navarro noted that American aluminum producers were operating at 46% capacity. This means that American producers must allocate all of their fixed costs to less than half of what they could be producing if they were operating at 100% capacity. This drives profits down, wages down and keeps prices high.
So why aren’t American producers running at full capacity? Because without tariffs, our foreign competitors have learned that they can run their plants at full capacity and dump their surplus production into our market. This creates a spiraling death sequence where foreign producers can run at full capacity while our plants run at 46%. This kills American jobs and industry.
What else happens when a plant is only operating at 46% capacity? The plant makes less profit and defers maintenance. Then the salaries of talented engineers and employees are flattened or cut. Then our factories become less flexible and less responsive to customer needs.
This is happening in many other American manufacturing sectors. President Trump is the first chief executive who has purchased goods and built projects worldwide.
He knows what’s going on. Building a real estate project is similar to manufacturing.
There are large fixed costs in both businesses. Once the fixed costs are covered, then everything else is gravy. For a factory with high fixed costs, as output goes up the marginal cost of production goes down. Foreign producers can dump additional production into foreign markets without disturbing the higher prices they charge their domestic customers.
In our efforts to help build and rebuild countries like China, Germany, Japan and Korea, politicians and academicians have focused on diplomacy and fine dining in foreign capitals instead of the needs of everyday Americans.
American manufacturing has been sliced and diced by every foreign competitor. The President knows this and has surrounded himself with Wilbur Ross, Peter Navarro and others that are serving the interest of America. Talk about a trade war? Every year we lose $800 billon in the trade war. Reducing this deficit is a win for America.
The gravy train for the rest of the world must come to a stop.
Hank Whetstone is a manufacturer and entrepreneur in St. Augustine, Florida. He graduated with High Honors in Economics from Vanderbilt University.