Here Comes Trump’s Trade War
Amid White House turmoil, the president unfurls the "America First" flag, and sees immediate blowback.
President Donald Trump on Thursday announced he would impose steep tariffs on imported steel and aluminum, sparking outraged threats of reprisals from countries around the world, howls of dismay from Republican lawmakers, and fears of massive job losses across the rest of the U.S. economy.
Trump said after a White House meeting with steel and aluminum executives that he plans to impose next week the toughest of the three remedies proposed by the Commerce Department, a 25 percent tariff on steel imports and 10 percent on aluminum. The recommendations came after the department found that the underperforming U.S. steel and aluminum sector posed a threat to national security.
The decision to embrace a tough, protectionist trade policy fulfills a campaign pledge to steelworkers who’d grown frustrated with the slow pace of protection. But it also comes at a time when the embattled president, beset by personnel departures at the White House and intensifying investigations into his possible collusion with Russia, is lashing out.
Many inside the administration advised against the measures, which will make manufactured products more expensive for all Americans and which could lead to big job losses. William Dudley, the president of the Federal Reserve of New York, made a last-ditch appeal for free trade in a speech in Brazil early Thursday.
“Although protectionism can have a siren-like appeal because of its potential to provide short-term benefits to particular segments of the economy, in the longer term it would almost certainly be destructive,” he said.
The details of the new tariffs are yet to be determined, and it’s not clear what countries, if any, could get exemptions from new rates. But Trump’s decision to seize the most protectionist arrow in the quiver immediately prompted threats of retaliation from Beijing to Brussels.
China’s foreign ministry criticized the “unreasonable and excessive” use of trade remedies, and said Beijing “will take necessary measures to safeguard its legitimate rights and interests.” When Trump earlier slapped tariffs on solar panels and washing machines, China retaliated by threatening U.S. sorghum exports; many fear U.S. soybean exports to China will be next in the crosshairs.
U.S. allies were equally upset. “We strongly regret this step, which appears to represent a blatant intervention to protect U.S. domestic industry and not to be based on any national security justification,” said European Commission President Jean-Claude Juncker. (The United States uses about 3 percent of its domestic steel production for defense purposes, and most of what it does import it gets from allies, making the national security justification for tariffs far-fetched for most trade experts.)
Juncker promised quick European action to punish U.S. exports in response.
“We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk,” he said. “The EU will react firmly and commensurately to defend our interests,” with both retaliatory tariffs on U.S. exports and safeguards to ensure that metal pushed out of the American market doesn’t flood Europe.
Canada, one of the biggest sources of steel for the United States and one of the biggest buyers of American steel, also reacted angrily. Foreign Minister Chrystia Freeland said tariffs on Canadian steel and aluminium would be “absolutely unacceptable.” She added: “Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”
Other countries like Mexico and South Korea had earlier indicated that they were preparing reprisals if the Trump administration made good on its threats to raise tariffs. The bad blood could have impacts beyond just limited duties on a select range of products. Those three countries — Canada, Mexico, and South Korea — are all currently in talks with Washington to renegotiate existing trade deals with the United States.
The reception to the new tariffs wasn’t much warmer in those corners of the Republican-led Congress that still support free trade. “Let’s be clear: The president is proposing a massive tax increase on American families,” said Sen. Ben Sasse (R-Neb.). “You’d expect a policy this bad from a leftist administration, not a supposedly Republican one.”
Beyond the increasing chances of a trade war that could impact U.S. exports, especially in agriculture, administration officials led by chief economic advisor Gary Cohn had argued against the tariffs for a simple reason: They’ve been tried before and failed.
President George W. Bush, also responding to political concerns, imposed similar duties on imported steel in 2002, ultimately destroying about 200,000 jobs in industries that relied on the now costlier steel. Since then, multiple studies have shown that the costs of such protectionist measures outweigh any short-term benefits. (Politico reports that losing the tariff battle could push Cohn out the door.)
Trump’s embrace of the protectionist policies he campaigned on threaten to undermine several other sectors of the economy that he also vowed to help: Manufacturing and energy. Trade groups representing a variety of steel-consuming industries — metalformers, machinists, refrigerator makers — warned Thursday that the new tariffs would raise their costs and threaten jobs across the country.
And one of the big users of steel is the U.S. oil-and-gas sector, which has to import nearly all the pipe it uses to drill and pump oil and gas around the country. In addition to undermining the export chances for American oil and natural gas, limits on imported steel “could impose new costs on oil and gas production,” said ClearView Energy Partners, an energy consultancy.
Ultimately, the new tariffs will likely bring more economic pain to the wider economy and further sour already bad relations with allies and other countries around the world.
“Steel is one of those things where it doesn’t matter what the economic textbooks tell you,” said Christopher Smart, a former Obama administration economic adviser, now at the Carnegie Endowment for International Peace.
“The math doesn’t add up for the economy, and we’re going to anger half our allies.”