Report

Trump’s Steel Tariffs on Allies Complicate Bigger Problem: China

Angering Europe, Canada, and Mexico makes it harder to build a common front against Beijing’s trade abuses.

The men waging Trump’s trade wars (from left): Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and White House National Trade Council Director Peter Navarro, in the White House on March 8. (Chip Somodevilla/Getty Images)
The men waging Trump’s trade wars (from left): Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, U.S. Trade Representative Robert Lighthizer, and White House National Trade Council Director Peter Navarro, in the White House on March 8. (Chip Somodevilla/Getty Images)

The Trump administration’s decision Thursday to slap steep tariffs on steel and aluminum from some of its biggest trading partners — Canada, Mexico, and the European Union — will make it harder for the United States to tackle the very trade abuses it claims to be fighting.

Despite a flurry of last-minute negotiations with Canada, Mexico, and Europe, the United States went ahead and levied a 25 percent tariff on imports of steel and a 10 percent tariff on aluminum imports from those three trading partners, ending the temporary exemption they’d enjoyed since the spring.

“Today is a bad day for world trade,” European Union Trade Commissioner Cecilia Malmstrom said in a press release Thursday. “This is protectionism, pure and simple,” European Commission President Jean-Claude Juncker added.

The tariffs, announced by U.S. President Donald Trump in March, are ostensibly meant to deal with a huge glut of overproduction in the global steel market that pushed down prices and led to a flood of imports into the United States and other mature economies.

But the administration’s punitive measures hit almost every country except the one responsible for the global oversupply and most of the steel sector’s woes: China.

Chinese steel production jumped in April by almost 5 percent year over year, and exports soared, due in part to higher prices caused by the Trump administration’s protective measures. China produces half of all the steel in the world; the three producers targeted by U.S. tariffs today together produce just over 12 percent of the global total.

Yet the hardball U.S. approach to its closest trading partners will make it harder to craft a joint response to Chinese oversupply.

“By targeting those who are not responsible for overcapacities, the US is playing into the hands of those who are responsible for the problem,” Juncker said.

And the insular U.S. approach to trade might just push Europe and other countries toward closer economic ties with China, the world’s second-largest economy, according to Mickey Kantor, a former U.S. trade representative in the Clinton administration.

“It will drive our European, Canadian, and Mexican friends into the hands of China and Chinese leadership,” he said. “You don’t have a lot of choice if the United States is not only going to reject you, but punish you.”

The measures, especially against Europe, could also make it harder for the United States to pursue other foreign-policy goals. The decision to withdraw from the Iran nuclear deal and re-instate economic sanctions on Iran, for example, sparked immediate pushback from Brussels. Some fear that further souring relations with Europe over unrelated trade issues will make it harder to find common cause against Iran.

But the Trump administration hasn’t hesitated to reach for any tool in its arsenal to tackle what it sees as unfair trade. To protect the U.S. steel industry, the administration relied on 1960s-era legislation that gives it the ability to put tariffs on imports of certain goods if they are deemed threatening to national security, despite World Trade Organization rules that generally prohibit overt protectionism. Though the U.S. steel industry can amply meet U.S. defense production needs, the Trump administration invoked the tariffs anyway — sparking outrage and reprisals from Brussels to Beijing.

Last week, the administration announced it was considering using the same national security argument to put tariffs on imported cars. (German media, meanwhile, reported that Trump hopes to ban all German cars from the United States.)

“We’ve gone from unpredictability to chaos,” said Doreen Edelman, an international trade lawyer at Baker Donelson. The hardball tactics will trigger retaliatory tariffs on U.S. goods, hurting exporters, which could further escalate into a tit-for-tat trade war. “We’ve hit the slippery slope,” she said.

The European Union has already drawn up a list of more than $3 billion worth of U.S. products — such as bourbon, tobacco, and motorcycles — that will be subject to retaliatory tariffs. Canada, too, announced its targets for retaliatory tariffs on everything from toilet paper to ballpoint pens. “These tariffs are totally unacceptable,” Prime Minister Justin Trudeau said.

Reprisals from Canada and Mexico would hit the U.S. economy even harder than the EU measures, Kantor noted — Mexico buys almost as many U.S. goods as all of Europe.

The EU further said it would challenge the U.S. decision at the World Trade Organization.

For months, the Trump administration had held the threat of steel tariffs over Canada, Mexico, and the EU in the hopes of forcing concessions on broader trade talks; the United States and its neighbors are still trying to revamp the North American Free Trade Agreement, though it is now almost certainly too late to get a new deal through Congress this year.

But the threats did little to move Canada or Mexico to swallow unappealing U.S. demands in NAFTA talks, and Brussels repeatedly said it wouldn’t negotiate at the point of a gun. “This is not the way we do business, and certainly not between longstanding partners, friends and allies,” Malmstrom said Thursday.

Since coming into office, the Trump administration has taken a protectionist approach to trade and has moved away from the ambitious, multilateral trade deals that were a hallmark of the Obama administration. Trump pulled out of the Trans-Pacific Partnership (TPP), envisioned as a 12-nation trading bloc, and did little to advance similar talks with the EU.

Other countries in Asia and Europe tried to prop up global free trade — the remaining TPP countries plowed ahead without Washington, and Brussels is busy advancing trade deals with Canada, Mexico, and Japan. But the knock-on effects of the Trump administration’s tariffs will further dent global free trade.

The European Union is already preparing import restrictions of its own to shield its producers from a flood of any excess steel that is diverted away from the U.S. market due to the tariffs.

Even countries that sought to avoid protectionist measures, in other words, find themselves forced into matching U.S. actions, a beggar-thy-neighbor approach that threatens to derail the fragile rebound in global trade and dampen economic prospects.

“We tried this in the 1930s, with the Smoot-Hawley tariffs,” Kantor said. “And it was a disaster.”

This article was updated Thursday afternoon.

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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