2024 will be a year of big elections, particularly for the United Kingdom and the United States. Amid what many experts consider to be an escalating trade war, citizens in both countries can’t help but wonder what lies in store for UK and US trade.
On July 4, the UK electorate will go to the polls to vote in a national election. As in the United States, two parties will largely dominate the choice. The UK has a small Green party and a left-of-center Liberal/Democratic party, both of which perform well in local municipal elections but rarely garner more than 10% of the national vote. There is also the single-policy Reform Party, which has a sole focus on immigration.
Recent polls suggest the country will vote in favor of the left-of-center Labour party and oust the decade-old, marginally right-of-center Conservative Party. However, no one outside the country will notice any difference. Weekly information about how election news and macroeconomics might impact your metal buy are covered weekly in MetalMiner’s Weekly Newsletter.
The US Presidential Election
The same cannot be said for the US presidential election on November 5. Unlike the election in the UK, America’s choice presents a stark contrast: the continuation of an aging Joe Biden or the return of an also-aging Donald Trump. Many would like to see younger candidates on both sides, but it is what it is.
At this stage, it is too close to call, but should Donald Trump get back in, we can likely expect a return of “America First on steroids.” But when looking at US trade, it seems that Europe, or at least Europe’s media, has largely misunderstood what the former President was trying to achieve in his previous term.
Trade War and Protectionism
When the Trump administration slapped tariffs on steel and aluminum in the name of national security, free marketers met them with howls of protest, labeling the efforts as blatant protectionism. However, both US political parties now seem to be aware of the fact that the West remains embroiled in an economic trade war. A key indication of these is a 30-year trade imbalance cumulatively approaching $20 trillion. If the US and UK continue to lose the trade war, they face the very real threat of losing a fighting war (if it ever comes to it).
A country cannot sustain an effective defense on the back of retail demand or services; it needs a manufacturing base. As Russia recently learned, the enemy’s first move in a fighting war is to hinder your ability to import and export primary products – steel, base metals, chemicals, semiconductors, etc. China produces some 50% of the total global output of such products, while the US, like Europe, is a net importer of all of them.
So, while the rhetoric was unconventional, the logic behind putting up barriers to support domestic production remains sound. In order to optimize metal sourcing and purchasing strategies to adjust to macroeconomic changes like these, read The 5 Best Cost Saving Sourcing Tactics.
US Trade and State Support for Manufacturing
Are tariffs in themselves enough? Asian economies like Japan, South Korea, and, more recently, China, clearly didn’t think so. These nations poured state support into the development of substantial domestic industries. In the US, the same level of state support did not follow the imposition of trade barriers. Instead, the country largely relied on the market to respond to the “opportunity.” The result has been modest at best.
There was some minor investment in the steel industry, but nothing spectacular. Meanwhile, aided by state support, Century recently announced its intention to build the first new primary aluminum smelter in 45 years. However, even after the imposition of the tariffs, the US aluminum industry continued to shrink.
The problem clearly lies not just imports but domestic power costs. The Biden administration’s Inflation Reduction Act partially intended to address this. In fact, the $500 million flowing to Century arises from this package. But many argue that the IRA tried to solve too many problems at once, such as alleviating living conditions and pollution in disadvantaged areas.
While noble, these goals will not be as effective in supporting America’s manufacturing. Clearly, they would not be as effective as a policy focused solely on creating lower power costs for manufacturers facing competition from countries openly supporting such policies for a decade or more.
America’s Global Position
The US’s position as a global superpower depends on its ability to develop and manufacture advanced technologies while also retaining security of supply. While many around the world may welcome a more multi-polar world, it no doubt increases the risks of global conflict. US hegemony may not be to everyone’s taste, but like democracy being the “least bad” form of government, the alternative could well be much worse.
The new administration’s primary focus should be to support the domestic industrial base. If that looks like protectionism or state aid, then so be it. Let’s hope whoever wins can rise to the challenge and honestly put America first.
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