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A Matter of Steel Industry Security

President Trump activated a seldom-used provision in U.S. trade law last week that could result in sweeping tariffs on imported steel, all in the name of U.S. “national security.” The initiative only proves that the argument for industry protection has become as bankrupt as an abandoned steel mill.

The law invoked by the president is Section 232 of the Trade Expansion Act of 1962. It allows the U.S. Secretary of Commerce to investigate whether certain imported goods “threaten to impair the national security.” How would they do that? By becoming so dominant in America that they drive out indigenous producers, thereby forcing the American military to rely on precarious foreign sources rather than reliable indigenous ones for its needs. If the conclusion is “yes,” the president then decides whether to accept the recommendation, and if so, what actions to take, including import restrictions, to remove the threat.

In this case, the entire exercise is a waste of resources and a sop to the relatively small domestic steel industry and its unions. If patriotism is the last refuge of a scoundrel, then national security is the last refuge of domestic producers that want to hobble their foreign competitors.

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips. While it’s true that steel imports have risen to about a quarter of U.S. consumption, domestic steel output remains robust. During the past decade, according to the World Steel Association, annual output at U.S. steel mills has been trending slowly downward but it was still an impressive 78 million tons in 2016. That ranks the United States as the world’s fourth largest steel producer.

Domestic steel production far exceeds any foreseeable need by the U.S. military, which is a relatively small customer for domestic steel. The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. The Pentagon still needs steel for ships, tanks, and warplanes, but the demand has been flat or trending down for years.

A Section 232 investigation was last undertaken in October 2001. In its final report, the Commerce Department determined that “there is no probative evidence that imports of iron ore or semi-finished steel threaten to impair U.S. national security. There is neither evidence showing that the United States is dependent on imports of iron ore or semi-finished steel, nor evidence showing that such imports fundamentally threaten the ability of domestic producers to satisfy national security requirements.”

The 2001 report found that the Department of Defense’s annual requirements for steel “comprise less than 0.3 percent of the industry’s output by weight (i.e., 325,000 net tons of finished steel per year).” It also found that the steel that was imported came mostly from a diverse and “safe” list of foreign suppliers, such as Canada, Mexico, and Brazil.

Fifteen years later, nothing fundamental has changed. China, one of the big trade bogeymen for this administration, accounts for only a small share of U.S. steel imports, largely because the domestic steel industry has already made effective use of anti-dumping and anti-subsidy duties to curb its imports to the United States.

The biggest threat to U.S. national security is not steel imports, but new steel protectionism. The other 97 percent of domestic steel production is consumed by a broad swath of U.S. industry, including construction, and such manufacturing sectors as automobiles, machinery & equipment, energy, and appliances.

If the Trump administration imposes new barriers to imported steel, it will drive up the domestic price of steel, imposing higher production costs on those other sectors of the economy and making their products less competitive in global markets. Economists estimate that for every U.S. worker in the steel industry, there are 60 workers in steel-consuming industries whose jobs will be made less secure by any new steel tariffs. Those tariffs will weaken, not strengthen, America’s industrial base.

President Trump’s Section 232 investigation is all about domestic politics, not national security. The impetus for the investigation was not from the U.S. military or defense experts, but from executives and union leaders in the domestic steel industry, who were standing at the president’s side in the Oval office last week during the ceremony launching the investigation. Their overriding interest is to protect their bottom line and to pad their union membership by crippling their foreign competitors and driving up domestic steel prices, whatever damaging effect it will have on their fellow Americans.

Trade policy should be about maximizing the freedom and well-being of the American people, and happily a policy of free trade does both. But instead this administration is pursuing a trade policy based on narrow special interests—a policy of the steel industry, by the steel industry, and for the steel industry—and cloaking it in the flag of national security.

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Movie Review: The Circle

WatsonIf Facebook were a tech company headquartered in Hell—and who’s to say it actually isn’t, eh?—it might closely resemble The Circle, the blandly creepy organization at the center of the new movie by director James Ponsoldt (The End of the Tour). The picture is based on a 2013 novel by Dave Eggers, and it shows us a world in which individual privacy has withered, and heedless vigilantism is routinely fanned into online witch hunts. This ugly digital future is a little less-disturbing than it might have been, because in many ways it’s already arrived.

Emma Watson is Mae Holland, a young Bay Area woman who’s rescued from a dismal temp job by a call from her longtime friend Annie (Karen Gillan), who works at The Circle and gets a job interview for Mae so that she can come onboard, too. (The interview is a typically whimsical nerd interrogation: “Joan Baez or Joan Crawford? Sushi or Soylent?”) The company is a shiny paradise in which employees are coddled at every turn. There are support groups for all sorts of life annoyances, and off-campus party excursions at which stars like Beck provide the entertainment. All of the employees seem to be young, and all are deliriously enthusiastic. Soon Mae is installed in a deluxe dorm room, marveling at her amazing luck.

The first unsettling sign that something’s not quite right at this place is a visit from two team-leader-type employees who are concerned that Mae is remaining a little too mysterious: she has to be much more active on social media, and to start dealing with the thousands of friendly messages she’s been letting go unanswered. Also, it’s been noticed that she doesn’t come into the office on weekends—not that there’s anything wrong with that.

Mae quickly gets with the program, and soon comes to the attention of The Circle’s beamingly avuncular leader, Eamon Bailey (Tom Hanks), and his purring subordinate, Tom Stenton (Patton Oswalt). At the “Dream Friday” gatherings he runs in the company auditorium, Bailey strides the stage like the ghost of Steve Jobs. He’s currently talking up a tiny new camera the company has developed that can be unobtrusively stuck on a wall to broadcast what it sees, in real time, to Circle subscribers worldwide. The camera is called SeeChange, and it’s a powerful human-rights weapon, Bailey says: “Tyrants and terrorists can no longer hide.” Nor, of course, can anyone else.

Not everyone buys into The Circle’s life-swallowing agenda. Mae’s parents (Glenne Headly and the late Bill Paxton, in his last movie role) give it a try, but bail out rather than sacrifice their privacy. (They’re old, what’re you gonna do?) Also resistant is Mae’s once-close pal Mercer (Ellar Coltrane, of Boyhood), who is found by Circle honchos to be guilty of not staying in close-enough touch with her—of not accepting the necessity of constant online connection. Mercer comes to regret this. Also skeptical, as Mae eventually learns, is a mysterious guy named Kalden (John Boyega), who as a cofounder of The Circle knows some alarming things about it.

Unfortunately, nothing about the movie is quite alarming enough. There’s no menace beyond The Circle’s determined creation of an all-encompassing surveillance state—and don’t we already live in one of those? Nothing new seems to be at stake. This is a non-sci-fi movie that might have been improved by the addition of an alien invasion.

Still there’s a real totalitarian chill to some of the rationalizations put forth here for a society in which everyone is constantly logged on and keeping track of what everyone else is up to. There’s nowhere to hide—and that’s felt to be good. “Secrets are what make crimes possible,” says one character. “When you’re depriving others of your experiences,” Bailey asserts, “you’re stealing from them.”

It’s as disconcerting as always to recognize how easily this sort of agenda can be sold to so many people. Drawn ever more deeply into The Circle, even Mae not only drinks the Kool-Aid, but soon starts doing laps in it. “Do you believe you behave better or worse when you’re being watched?” Bailey asks her at one point. “Better,” she says.

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Yes, Science, But How About a March for Math?

Tens of thousands of people marched in hundreds of cities last weekend as part of something billed as the March for Science. The event, which coincided with Earth Day, was meant to rebuke the Trump administration’s global-warming skepticism and its plan to cut taxpayer funding for the Environmental Protection Agency and other federal agencies that arguably deal with “science.”

“The job of science is to both understand the Earth, understand the things that we can get out of the Earth, how we’re going to interact with it, how we’re going to make the Earth a better place,” said a representative of the Carnegie Institution of Science in a news report. “So seeing it fall under such hard times or negative impressions of it is just amazing to me.”

It’s a stretch to suggest that the prominence of scientific knowledge in general is falling under “hard times” because of recent proposals to trim the budget of some massive government bureaucracies. Judging by the anti-Trump signs and demands for more funding for various programs that proliferated at the marches, it seems they were more about political science than the kind of hard science that March for Science organizers had touted.

Nevertheless, the marchers are onto something, although their concept should be applied instead to a different discipline. “I think we need to have a March for Math. How you gonna be over $19 trillion in debt and still spending?” wrote commentator Julie Borowski. Indeed. Our political leaders, in California especially, are enthralled by climate science and have embraced myriad programs to deal with the issue of man-made global warming.

No, most legislators aren’t at war with science. They remain at war, however, with basic numbers. Congress continues to spend money even though the federal budget is trillions of dollars in debt. How does that work? We keep hearing—from members of both parties, by the way—that the key is cutting government waste. But there’s no appetite for cutting entitlements, or defense spending, and there’s no way to cut service on debt. After those items, the federal government already is running a deficit. That’s an obvious addition problem.

In California, legislators in 1999 passed a law that led to a tidal wave of retroactive 50 percent pension increases for government employees across the state. Its advocates claimed that such a huge giveaway wouldn’t cost taxpayers a dime. And that one law, passed with bipartisan support and over the objections of fiscal watchdogs, has laid the groundwork for California’s continuing pension problems, which have unfunded liabilities estimated as high as $1 trillion.

That math deficiency ought to lead to angry protests in cities across the state, let alone marches.

Former Republican Gov. Arnold Schwarzenegger’s pension adviser, David Crane, said in testimony before the state Senate in 2010 that the California Public Employees’ Retirement System (CalPERS) “has not been requiring adequate contributions when pension promises are made, virtually assuring deficiencies for which only the state is on the hook… Initial contributions are determined by investment return assumptions. For example, in 1999 CalPERS based pension contributions on an 8.25 percent annual investment return, which implicitly forecast that the Dow Jones industrial average would reach roughly 25,000 by 2009 and 28,000,000 by 2099.”

We see the Legislature and then-Gov. Gray Davis (D) not only were incapable of doing simple math problems, but they embraced fiscal models that had more to do with “magical thinking” than “mathematical reasoning,” especially when it comes to multiplication tables. Don’t they know that inadequate contributions and overly optimistic rate-of-return predictions multiply the size of the shortfall and have a cascading effect?

Similar math problems continue. In its last fiscal year, CalPERS’ investments earned a return of less than 1 percent. The agency responded by voting to reduce its expected return rate to a still-too-high 7 percent, which suggests legislators need to brush up on the concept of compound interest.

State leaders didn’t know—or were so eager to increase benefits for their union allies that they chose not to know—that retroactive increases would lead to an exploding membership in the $100,000 pension club, and resulting cost increases for local governments. Those governments would raise taxes and pare back budgets. That’s a subtraction problem that legislators and CalPERS overlooked, although subtracting personal income and reducing public services to make up for exponential growth in public-sector pensions have never been much of a concern to them.

California officials have trouble with percentages, too. For instance, CalPERS will soon have more people receiving benefits from the system than paying into it. The pension fund’s defenders will say that’s not a problem, given that the fund is supposed to be self-sustaining, which means that the amount of money paid into it plus interest earned from investments pays for all the retirement costs. Yes, it’s supposed to be, but it isn’t self-sustaining. The system’s “unfunded liability” refers to the amount that isn’t paying for itself, and is backed by the state’s taxpayers.

It’s hard to see thousands of people rallying to the cry, “no unsustainable pension systems,” but it might do more good than yelling about “science.”

The Democratic Jerry Brown administration and the Democratic legislature have not put the pension issue—or the retiree medical issue, which may be an even bigger problem—on the agenda since the 2012 passage of the Public Employees’ Pension Reform Act. PEPRA, they say, has reformed the system. The act reduces benefits almost entirely for newly hired public employees. Here’s where math education comes in handy. Those employees won’t start retiring for 25 or 30 years, so slightly reducing their benefits will do little to deal with the current pension debt.

Some California cities (Stockton, Vallejo and San Bernardino) have gone bankrupt, but none of them have trimmed pension benefits for current employees, even though a federal judge in the Stockton bankruptcy case said that cities may “abrogate” pension promises in bankruptcy. Before the decision, CalPERS had argued that this wasn’t allowable. Essentially, cities would be forced to pay benefits they had promised even if they didn’t have the money to do so. Talk about the New Math.

Lo and behold, Vallejo and Stockton have continued to have fiscal problems even after exiting bankruptcy. Regarding San Bernardino’s exit plan, Moody’s reported last week that the city “will face operational challenges associated with deferred maintenance and potential service shortfalls, which, added to the pension difficulties, increase the probability of continued financial distress and possibly even a return to bankruptcy.” Officials in all those cities insisted their bankruptcy workout plans would fix their cities’ problems.

These are definite math problems. The impact of ignoring math won’t mean that planet Earth dissolves in a giant fireball, as some global-warming activists claim, but it will mean that cities will continue to face “service insolvency”—when there’s enough money to pay the bills, but not to provide an adequate level of public services. Other cities will no doubt face actual insolvency. Some people may lose their pensions. Taxpayers will continue to face higher taxes. Businesses will continue to flee the state. Unlike global warming, this is something local officials can really change if pressed to do so.

There are lots of statistics to add and subtract here, even if there’s little understanding of them by those who make the decisions and spend our money. After the Governmental Accounting Standards Board (GASB) issued new rules that prodded governments into more accurately reporting their liabilities, the size of California’s stated debt has soared. That’s a good step in the direction of honest math, but it’s only the first step forward.

Maybe it is time for concerned citizens to march to Washington, D.C., and Sacramento—and to their local city hall, as well. They can carry signs, although it’s hard to come up with pithy comments that rhyme with “unfunded liabilities,” “service insolvency,” “3 percent at 50” and “assumed rates of return.” Still, it might be worth trying. Rhode Island Gov. Gina Raimondo, a Democratic advocate for pension reform, has said the pension problem is “about math, not politics.” She’s right—and it’s also a perfect slogan for a march.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This column was first published by the California Policy Center.

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