Trump, national security and steel making

The Constitution of 1988 proposes the construction of a civilized society. Its supreme values are: 1) the broadest individual freedom; 2) the systematic pursuit of equality of opportunities; and 3) constructing an efficient coordination of the economic activity of citizens compatible with them. The three conditions are not easily accommodated. The long history of mankind suggests that so far the only available form of coordination capable of hosting freedom and equality is through “markets.” For its good operation they demand the private property, which reduces the equality and puts at risk the democratic legitimacy.

Since the three goals are relatively incompatible, they can only be accommodated asymptotically, by a political administration centered on a strong state, which regulates the “markets,” especially the financial. It, too, must be restrained constitutionally. These conditions don’t ensure, however, a robust social and economic development, inclusive and sustainable. For that it is necessary to have a reasonably consensual project that indicates what the nation wants to be over the next 25 years (at least) and refuses the subjection to the wills of the “markets.”

When it opens up to international trade, it can, if unregulated, control its future. While it can increase the productivity in the long run, exploiting the “comparative advantages”, it can produce inconvenient effects in the near term, like accentuating the differences between “winners” and “losers” and altering the income distribution that, if not attenuated by adequate public policies, upsets the social cohesion and may lead to regressive political impasses. History shows that “comparative advantages” are not divine and can, within reasonable limits, be constructed. The full trade opening tends to shape the country’s productive structure. That’s why it is necessary to be careful not to turn it into servant of the demand of its partners and not master of its fate.

This has nothing to do with the good economic theory. It has to do with the naïve view of the world of some economists. They think of it as made up of small altruistic island, parts of an archipelago where peace and fraternity reign under the UN control! Unfortunately, the world is something else. A collection of independent islands, with quite different interests, which see themselves with some suspicion and willing to defend their territory at any cost. For them, the UN is only a place of literary-musical meetings that hosts a diplomatic bureaucracy that pretends not knowing what it is: an organism that serves to the five powers that have the veto to continue “protecting,” in any circumstance, their old or new colonies…

That is why the island with intention of carrying out a social and economic development project that defines its future must be in command of its economic policy, informed by the good theory supported by historical evidence, which allows: 1) executing an independent monetary policy that conducts to the stability of the currency value in a regime close to full employment; 2) establishing a real internal interest rate similar to the external one added to its idiosyncratic risk in order for 3) the real exchange rate be adequate and reflect the conditions of the real economy and not of the financial market; and 4) which coordinates the fiscal and monetary policies to produce a relative fiscal equilibrium, capable of sustaining a debt burden that creates room for anti-cyclical actions when the private demand shows signs of weakness.

Since in the economy neither the “supply” creates necessarily its own “demand,” nor the “demand” necessarily creates its “supply,” the coordination of the development process demands a safe and friendly relation between the state and the private sector. Its role must be of coordinating the program of the future of society and take advantage of the comparative advantages, but not being carried away by the international division of work imposed by the powers that control the world.

What are the conditions for an island to be able to enjoy relative independence? Since immemorial times it is known that they are building, as much as possible, three autonomies: 1) food; 2) energy; and 3) military, creating a dissuasive capacity of defense. None of them may be achieved without an efficient steel industry. We needed the Trump earthquake to wake up to the fact that the steelmaking is not only an economic problem, especially in a world where piece is ever farther!

By defining that all infrastructure projects it will order will necessarily have to use steel produced in the US, Mr. Trump strongly hurt our exports. By signing the protectionist act, he said: “This has nothing to do with China. This has to do with worldwide. Maintaining the production of American steel is extremely important to our national security.” Brazil has not yet understood that. The productivity as measured by tonne of steel per worked hour per man of our steel industry is very close to the global one, but the lack of the system that eliminates taxes in exports and the giant real interest rates charged over the cost of an industry of long cycle rob it of competitive capacity. It is languishing and will get worse with the American restrictions.

By Antonio Delfim Netto



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