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President Donald Trump wants tariffs on steel and aluminium

WHEN President Donald Trump tweeted “We want free, fair and SMART TRADE,” on March 1st, trade-watchers groaned. Later that day, after months of back-and-forth between the protectionists and the globalists in the White House, he appeared to deliver the tariffs he has long been promising. He announced tariffs of 25% on imports of steel and 10% on those of aluminium. He promised protection “for a long time”, adding “you’ll have to grow your industries, that’s all I’m asking.” According to the New York Times, he told the assembled executives from steel and aluminium firms whom he met before the announcement that he did not intend to exclude any country from the tariffs.

Mr Trump’s bid to nurse America’s steel and aluminium industries to health could benefit some workers. There is a global glut of both metals, largely driven by an enormous expansion of China’s production capacity since the early 2000s. That created trade flows to America that over 420 separate anti-dumping and countervailing duties could not fully stem.

The avowed aim of the tariffs, though, is national security. Dennis Harbath, who manages the only smelter in America that produces the high-purity aluminium used in some fighter jets, is gratefully preparing to restart some idled production lines as soon as the tariffs are brought in.

Seen more broadly, the proposals look less “SMART”. Americans employed in steel-consuming sectors far outnumber those employed directly in steel and aluminium industries (see chart). Higher prices of inputs for products such as cars, air-conditioning units, refrigerators and beer cans will be passed on to consumers. If they respond by buying less, jobs will be lost. Studies have found that George W. Bush’s tariffs on steel in 2002 destroyed more American jobs than they saved. If the North American Free-Trade Agreement (NAFTA) continues in something like its current form, manufacturers could even avoid the new tariffs by shifting production to Canada or Mexico, from where they can export their final goods to America tariff-free.

The tariffs may not even make for good domestic politics. Orrin Hatch, the Republican head of the Senate Finance Committee, complained on March 1st that “tariffs on steel and aluminium are a tax hike the American people don’t need and can’t afford”. Mr Trump’s move falls under Section 232 of the Trade Expansion Act of 1962, which allows the president to act without congressional constraints. But he still needs co-operation from Congress elsewhere, for example if he wants to renegotiate NAFTA.

Beyond America’s borders the policy will be disastrous. The countries likely to be hardest hit by broad tariffs include close allies such as Canada, Mexico and South Korea.

Under the rules of the World Trade Organisation countries are not supposed to introduce new tariffs. But there is an exception when national security is at stake. If other countries sue America in the WTO (several are planning to do so) and the body’s judges rule in America’s favour, the precedent would encourage many to erect their own tariffs on the same ground. (Countries, including America, have spent years trying to stop China from doing exactly that.) If the judges rule against America, Mr Trump is unlikely to bow and comply.

An even bigger fear is that countries will not wait for a WTO ruling. It took 20 months for the WTO to rule Mr Bush’s steel tariffs illegal. Instead, they might take matters into their own hands. Chrystia Freeland, Canada’s foreign minister, promised her country would “take responsive measures to defend its trade interests and workers”. Mexico is reportedly planning retaliatory measures, too. The Chinese are unlikely to refrain from action. In 2009, after Barack Obama imposed safeguards on Chinese tyres, China responded with (illegal) restrictions on America’s chicken-feet exports. America’s agricultural sector is bracing itself for retaliation.

There may be ways other countries can hit back quickly while sticking at least nominally to WTO law if they treat the American tariffs as a “safeguard” action. Countries are allowed to impose retaliatory duties against a state that imposes such tariffs when imports have not increased in absolute terms. Certain types of American steel imports, such as “long” products (which include rails and wire rod), have not been rising recently. So the European Commission has a provisional list of products. These cover steel, industrial and agricultural products in roughly equal proportions, though that may change over the coming days. In 2002 the European Union referred to this provision when it considered slapping tariffs on American exports such as orange juice.

Meanwhile, Cecilia Malström, the EU’s trade commissioner, said the Europeans could also impose similar tariffs if America’s measures divert cheap steel and aluminium to EU countries.

America’s steel industry has been lobbying for protection for decades. But the chaos of the on-off-on-again announcement, the lack of process, the sweeping nature of the proposals and the threat to the global rules-based trade system are all new. Jennifer Hillman of Georgetown University, who had been a member of the United States International Trade Commission in 2002, describes the verbal announcement as “obviously very unusual”. Mr Trump’s pronouncement came with only vague details of when a formal declaration would be signed (“next week”). This strange way of conducting policy has one silver lining. It gives the tariffs’ many opponents a final chance to change the president’s mind.

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