Trump Knows the Best Trade Wars. The Very Best.
What better way to boost national security than to tick off all your allies?
U.S. President Donald Trump on Thursday followed through on his threats to levy across-the-board tariffs on steel and aluminum imports, though he gave a temporary respite to Canada and Mexico while trade talks continue among the three countries.
Trump’s proclamation from the Roosevelt Room in the White House, where he was flanked by steel and aluminum workers, ignored desperate pleas from his own now-departed economic advisers, a big chunk of the Republican Party, overseas allies, and most of the U.S. business community. The 25 percent tariffs on imported steel and 10 percent on aluminum will take effect in two weeks.
“Steel is steel. You don’t have steel, you don’t have a country,” Trump said. “The actions we are taking today are not a matter of choice, they are a matter of necessity for our national security.”
The measures were softened in one way from Trump’s off-the-cuff pronouncement a week ago: Mexico and Canada will get a temporary reprieve while negotiations continue on the revised North American Free Trade Agreement. But White House officials said that if those exemptions stay in place, the administration may have to raise tariffs modestly on other countries to compensate.
The administration also said it is willing to talk with affected trade partners to find alternative ways to reduce imports, including voluntary quotas or import restrictions like those used to curb Japanese imports in the 1980s. Trump on Thursday said discussions with U.S. allies on tariffs could hinge on the allies’ level of defense spending.
“Many of the countries that treat us the worst on trade and on military are our allies, as they like to call them,” he said.
White House officials defended the protectionist measures on national security grounds, arguing that a robust steel and aluminum sector is important both to national defense and broader economic health. “The rationale from a national security and an economic security point of view is unassailable,” a senior White House official told reporters Thursday.
But Trump, for his part, has shouted from the rooftops that the measures are meant to shield U.S. metal workers from what he sees as unfair competition, rather than acting as a national security imperative. Cloaking domestic protections in the guise of national security concerns exposes the United States to an avalanche of complaints from trade partners at the World Trade Organization.
And for a policy purportedly meant to bolster U.S. national security, the tariffs have managed to gratuitously anger a bevy of countries with which the United States actually has formal alliances, security partnerships, or close defense ties.
As of September 2017, the top 10 countries that shipped steel to the United States included three NATO allies, South Korea, Japan, India, Taiwan, and Mexico. That could be problematic now that Washington is trying to defuse nuclear tensions on the Korean Peninsula with help from Seoul and Tokyo, work with Turkey to end the war in Syria, move closer to India to counter China, and support NATO and the European Union against an increasingly aggressive Russia.
“As a matter of geostrategy, this is an appalling time to do something like this,” said Benn Steil, director of international economics at the Council on Foreign Relations.
The tariffs are formally being implemented under a national security provision of a 1962 trade law. The Commerce Department, after investigating since last April, determined early this year that the wheezing U.S. steel and aluminum sectors pose a threat to national security. White House officials stressed that national security includes both the defense industrial base — the ability to manufacture high-tech weapons like the F-35 strike fighter or new ships for the Navy — as well as the country’s broader economic vitality.
When it comes to aluminum, at least, there are legitimate concerns about the ability of the shrunken U.S. sector to produce enough high-purity, military-grade metal needed for advanced weapon systems. There is only one remaining U.S. smelter making the top-end metal needed for defense applications, a potential cause for concern as China builds a near-peer navy and other rivals have made huge advances in fighter jets, air defense systems, artificial intelligence, and more. (However, the Aerospace Industries Association, a trade group, said the tariffs would threaten jobs and add $2 billion in costs.)
“The re-emergence of major power competition may require some new investments to secure our industrial and national innovation base,” said Patrick Cronin, director of the Asia-Pacific Security Program at the Center for a New American Security. “But sweeping tariffs appear more like a blunderbuss than a precision-guided munition.”
It’s harder to make the case for national security worries about steel, even though the United States is the world’s largest steel importer. Its top suppliers include countries like Canada, Mexico, South Korea, and Brazil.
“It’s pretty clear that in any sort of national security crisis, it’s not like our enemies can starve us of steel — we can keep importing it as before,” Steil said.
Meanwhile, it’s far from clear that the tariffs will boost America’s broader economic health, one of the administration’s stated objectives. Big trade partners like the European Union have already compiled retaliatory lists of U.S. exports to slap with higher tariffs, targeting products made in Republican states, from Wisconsin-built Harley-Davidson motorcycles to Kentucky bourbon, affecting about $3 billion in annual trade. Other countries, from Brazil to South Korea, have promised to retaliate as well, a particular concern for the U.S. agriculture sector, a huge exporter around the world.
Previous steel tariffs in 2002 meant to shield domestic workers led instead to large job losses in industries that use steel, from automakers to welders to appliance manufacturers. Already, automakers like Ford are bracing for the impact of higher aluminum and steel prices that will slash their profits, while other steel-using firms are delaying new investments in the United States.
The energy industry in particular, which imports about half the steel pipes it needs for drilling and moving oil, is worried about the impact of higher prices on what has been one of the bright spots of the economy.
The U.S. Chamber of Commerce, the biggest national business lobby, this week urged the Trump administration not to implement the tariffs, warning that it would hurt manufacturers and spark a trade war while leaving untouched the biggest problem in the metals industry: massive Chinese overcapacity.
While Trump at the White House singled out countries like China that have subsidized their own industries and flooded global markets, his new tariffs will have virtually no impact on China, which is already subject to a host of duties on steel for its bad trade practices.