President Trump’s imposition of tariffs on steel and aluminum imports has ignited a worldwide firestorm of anger, frustration and confusion.
Countries that export steel and/or aluminum to the United States have vowed to retaliate with tariffs on U.S. exports and could lodge legal challenges at the World Trade Organization.
The WTO and the International Monetary Fund released statements decrying the tariffs — 25 percent on steel, 10 percent on aluminum.
In the United States, congressional Republicans, business and agricultural interest groups, even White House officials tried to talk Trump out of imposing the tariffs. His chief economic adviser, Gary Cohn, resigned after refusing to support them, the latest in a string of high-profile departures.
Cohn and other free trade advocates, including Defense Secretary James Mattis, Secretary of State Rex Tillerson (also since gone) and Treasury Secretary Steven Mnuchin, had warned against the tariffs for months, while Commerce Secretary Wilbur Ross and trade advisor Peter Navarro had pushed for them.
On March 1, Trump seemed to catch most of his staff off guard with his surprise announcement. A week later, the roller-coaster ride continued when the president declared that China and Mexico would be initially excluded from the tariffs pending ongoing renegotiations of the North American Free Trade Agreement. Trump also left the door open to exemptions for other security allies such as Australia on the condition that they address his trade concerns.
“I’ll have a right to go up or down, depending on the country, and I’ll have a right to drop out countries or add countries,” Trump said March 8, suggesting that he’ll use the threat of tariffs as leverage in NAFTA talks and other trade disputes. “We just want fairness. Because we have not been treated fairly by other countries.”
The announcements have left governments and businesses around the world struggling to figure out Trump’s next move. Despite the uncertainty, the tariffs are very much in line with one of Trump’s signature campaign promises and his long-held belief that free trade has cost American jobs. But his protectionist instincts have collided with his other economic goals, namely to keep job growth and the stock market humming along.
European Council President Donald Tusk retorted that “trade wars are bad and easy to lose.”
China, the 11th-largest exporter of steel to the United States, had earlier been hit with tariffs on solar panels and washing machines. Trump then began preparing other punitive measures targeting $60 billion in Chinese products, along with restrictions on Chinese investment, to crack down on intellectual property theft.
Beijing announced it would retaliate by slapping tariffs of up to 25 percent on nearly 130 U.S. goods totaling $3 billion, including pork, fruit and seamless steel pipes. Trump then declared he would impose additional levies on some 1,300 products totaling $50 billion, including 25 percent tariffs on Chinese flat-screen TVs, aircraft parts, phones and other high-tech goods. Shortly afterward, China fired back, announcing $50 billion in tariffs on U.S. cars, airplanes and lucrative soybean exports, sending markets tumbling on fears of an escalating trade standoff. Separately, analysts fear the showdown over tariffs could endanger China’s cooperation on the North Korean nuclear crisis.
“China does not want to fight a trade war, but it is absolutely not afraid of a trade war,” Beijing’s Commerce Ministry said in a statement.
While the steel and aluminum tariffs were ostensibly aimed at China, which is accused of flooding the world market with cheap metals that depress prices, their impact will be limited given that China only accounts for 2 percent of U.S. steel imports. Those tariffs are more likely to hurt U.S. allies such as Canada and South Korea, which together account for about a quarter of U.S. steel imports.
Canada (the largest source of U.S. steel imports) and Mexico (the fourth largest) were initially spared, although other allies such as Japan, Brazil and the European Union still found themselves in the lurch. But when Trump announced the additional tariffs on Chinese goods, he granted a brief exemption to the EU, Australia, Argentina, Brazil and South Korea, all of which now have until May 1 to negotiate trade concessions with the administration.
The reprieve did little to quell the confusion over Trump’s policy agenda. Governments ranging from Japan to Germany will now try to lobby to win further exemptions or threaten the U.S. with retaliatory tariffs. A simultaneous proclamation that the administration might impose import quotas on certain countries pending negotiations only further muddied the picture.
In a late March summit in Brussels, French President Emmanuel Macron said the EU is willing to negotiate with the U.S., but “will not talk about anything when it is with a gun to our head.”
European Commission President Jean-Claude Juncker was even more blunt in an earlier statement, saying, “so now we will also impose import tariffs. This is basically a stupid process, the fact that we have to do this. But we have to do it…. We can also do stupid.”
Trump tweeted his response to Juncker’s statement on March 3: “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!”
Like the Chinese retaliatory tarifs, the EU moves are designed to hit America’s heartland — and the GOP base. Harley-Davidson is based in House Speaker Paul Ryan’s Wisconsin district. Bourbon is made in Senate Majority Leader Mitch McConnell’s home state of Kentucky.
Ryan and McConnell both denounced the tariffs but have so far shied away from doing anything to block the measures, possibly in the hopes that the party can convince Trump to water down the tariffs.
“There is a lot of concern among Republican senators that this could sort of metastasize into a larger trade war,” McConnell said at a news conference. “Many of our members are discussing with the administration just how broad, how sweeping this might be, and there is a high level of concern about interfering with what appears to be an economy that is taking off.”
Aside from the possibility of retaliation, there is the specter of higher consumer prices as industries that use steel and aluminum have to pay more for them. That could raise the cost of everything from beer cans to cars to aluminum foil to even the cost of gas because oil companies use the metals for pipelines and extraction. Tit-for-tat tariffs by other countries could also punish American farmers and other businesses that have nothing to do with steel and aluminum. More expensive products could in turn cut consumer spending, further threatening economic growth.
“These are massive tariff hikes and they are going to raise costs for many of our world-class industries like autos, machinery and equipment, oil and gas, and construction. These are all huge sectors of the economy, and the negative impacts on them will surely outweigh any benefits to the steel and aluminum industries,” said Rufus Yerxa, president of the National Foreign Trade Council.
Economists echo those concerns, noting that the jobs potentially gained in steel and aluminum — an industry that had already been shrinking since the 1960s — do not outweigh the job losses in downstream industries. A new report by The Trade Partnership, a consulting firm, estimated that Trump’s tariffs could increase steel and aluminum employment by 33,000 jobs, but also cost 179,000 jobs in other areas of the economy.
Tori K. Whiting of the conservative Heritage Foundation noted that steel-using industries employ 17 million Americans in sectors ranging from automotive manufacturing to construction. “An increase in the price of imported steel and aluminum would put these jobs at risk,” she wrote in a March 2 brief. “This already happened in the recent past. Steel tariffs imposed in 2002 cost 200,000 hardworking Americans their jobs.” Those tariffs were lifted a year later.
Republicans also warn that a trade war could jeopardize any economic gains from the recently passed GOP tax cuts — thereby endangering the party’s prospects in the 2018 midterm elections.
“You’d expect a policy this bad from a leftist administration, not a supposedly Republican one,” said Sen. Ben Sasse (R-Neb.).
In a subsequent statement, Sasse added: “We’re on the verge of a painful and stupid trade war, and that’s bad. This isn’t just bad for farmers and ranchers in Nebraska who need to buy a new tractor, it’s also bad for the moms and dads who will lose their manufacturing jobs because fewer people can buy a more expensive product. Temporary exceptions for Canada and Mexico are encouraging but bad policy is still bad policy, and these constant NAFTA threats are nuts.”
Despite the blowback from his own party, Trump has been praised by some of his political opponents. Democratic members of Congress from steel- and aluminum-producing states said they supported the tariffs.
“Regions like my own have been heavily harmed by this very un-reciprocal trade across the board, almost in every sector. Steel has been particularly hard hit,” Rep. Marcy Kaptur of Ohio told CNBC.
Democratic Sens. Sherrod Brown of Ohio and Bob Casey of Pennsylvania also lauded Trump.
“This welcome action is long overdue for shuttered steel plants across Ohio and steelworkers who live in fear that their jobs will be the next victims of Chinese cheating,” Brown said in a statement.
“People have had unfettered access for a long, long time that are able to come here on very low if any types of tariffs, but yet they still have it restricted for us to go. That’s just not right,” said Sen. Joe Manchin (D-W.Va.). “I’m glad we are finally standing up for ourselves, and I applaud President Trump’s leadership and willingness to hold places like China accountable for the damage they’ve done to our economy.”
The Commerce Department has imposed least 22 anti-dumping sanctions against Chinese steel imports since 2003. That is the same amount it has imposed against the five largest sources of imported steel combined, according to Commerce Department data. Canada, the largest exporter of steel and aluminum to the United States, has had only one U.S. anti-dumping sanction imposed on it since 2003.
To impose the latest steel and aluminum tariffs, Trump invoked Section 232 of the Trade Expansion Act of 1962. The rarely used law allows the president to impose trade sanctions against imports that he deems threatening to national security. The U.S. Commerce Department released a report on Feb. 16 recommending that he do so on the grounds that cheap metals have eroded a key American industrial base.
The WTO charter allows any member country to take “any action which it considers necessary for the protection of its essential security interests.” But economists now fear that other countries will slap tariffs on American goods under the pretext of national security, bypassing longstanding international trade rules.
Section 232 has been invoked at least 14 times before, but no president has applied it as broadly as Trump has done. Most previous cases have targeted specific products, such as ceramic semiconductor packaging in 1993 and plastic injector molding 1989. And, “in a lot of cases, no tariffs were proposed,” said Steve Charnovitz, a trade law professor at the George Washington University.
“Import controls are not a very effective mechanism for protecting national security,” he said.
The Defense Department apparently came to the same conclusion.
In an undated memorandum to Commerce Secretary Ross, Defense Secretary Mattis said, “DoD believes that the systematic use of unfair trade practices to intentionally erode our innovation and manufacturing industrial base poses a risk to our national security.”
However, he added that “the U.S. military requirements for steel and aluminum each only represent about 3 percent of U.S. production. Therefore, DoD does not believe that the [Commerce Department] findings impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.”
Defense officials also point out that imports from close military partners do not pose a national security risk. Moreover, the tariffs could wind up costing the Pentagon money because it imports materials from these partners to build its fighter jets, weapons and other equipment.
The temporary exemptions that Trump announced seemed to offer some wiggle room. Republicans, defense officials and businesses continue to urge the president to craft a narrower, more targeted set of tariffs to avoid alienating key allies abroad.
Supporters of the tariffs, however, say fears of a trade war and higher consumer prices are overblown. Some polling also suggests that the tariffs won’t anger Trump’s blue-collar base as much as critics contend.
A Feb. 28 survey by Firehouse Strategies and Optimus found that 60 percent of Republicans said they are willing to pay more for cars if that’s necessary to limit imports of steel and help the U.S. steel industry.
Whether such feelings hold true if the price of a car jumps by $1,000 or people in downstream industries lose their jobs, however, remains to be seen.
One silver lining may be that other countries will act more judiciously than the president has in erecting trade barriers. In a March 5 op-ed, Warwick J. McKibbin of the Brookings Institution argues that countries may move cautiously before enacting steep punitive tariffs because America remains the world’s largest economy — and there are no winners in trade wars.
“As much as countries would like to raise tariffs in response to the uninformed aggression of the Trump Administration, this would clearly lead to losses for all and it would be yet another destruction of an important institution by the Trump Administration. This time it would be the WTO, which is the glue that binds the open world trading system,” he wrote.
And as The Economist pointed out in a March 8 editorial, steel and aluminum account for 2 percent of last year’s $2.4 trillion worth of goods imported to the U.S., or 0.2 percent of GDP.
But with Trump threatening to walk away from landmark free trade agreements like NAFTA and protectionists gaining an edge in an already-chaotic White House, the magazine also warned that the “omens are bad.”
“Unlike his predecessors, Mr. Trump is a long-standing sceptic of free trade. He has sneered at the multilateral trading system, which he sees as a bad deal for America,” it wrote. “Not since its inception at the end of the second world war has the global trading system faced such danger.”
The tariffs have even drawn comparisons to the Smoot-Hawley Tariff of 1930, which raised tariffs on over 20,000 imported goods to the U.S., which in turn led to retaliatory tariffs that were considered a major factor in prolonging the Great Depression and giving rise to fascist parties in Europe.
McKibbin co-wrote a paper with Andrew Stoeckel showing that even a minor global trade war where tariffs rise 10 percent would reduce the GDP of most countries between 1 percent and 4.5 percent, with the U.S. losing 1.3 percent of GDP and China losing 4.3 percent of GDP. “A 40 percent change in tariffs would cause a deep global recession. The Smoot-Hawley Tariff of 1930 comes to mind. It was driven by similar isolationists arguments that the Trump Administration now relies on,” they wrote.
Meanwhile, as Trump turns America inward, other nations are moving in the opposite direction. On the day Trump announced he would exempt Canada and Mexico but press ahead with steel and aluminum tariffs for everyone else, the 11 remaining members of the Trans-Pacific Partnership (TPP) that Trump withdrew from a year earlier announced they had signed the sweeping trade deal. Members of the TPP, which include Japan, Canada and Mexico, also signaled that China could eventually join the pact.
“Globally, there has been an increasing level of uncertainty, given the adoption of policies and measures by some key players that question the principles that have contributed to generating prosperity for our peoples,” outgoing President Michelle Bachelet of Chile said in a speech before the accord was signed. “We need to stay on the course of globalization, yet learning from our past mistakes.”
About the Author
John Brinkley is a freelance writer and was chief speechwriter for the Office of the U.S. Trade Representative in the Obama administration.