Claims of an impending trade war erupted last week when President Trump announced steep tariffs on steel and aluminum.
To propose the tariffs without Congressional approval, Trump took advantage of a law that allows him to establish tariffs in scenarios where national security is threatened.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” tweeted Trump on Friday. In a later tweet, he criticized the “very stupid” trade deals negotiated by previous administrations that have contributed to our yearly trade deficit of $800 billion.
Commerce Secretary Wilbur Ross said the new tariffs – 25% on steel and 10% on aluminum – will have a “trivial” impact on the price of goods.
Other Administration officials, including Defense Sec. James Mattis and National Security Adviser HR McMaster, oppose the tariffs and have spent the past year trying to prevent them from happening.
Lawmakers from both parties also criticized the tariffs, arguing they would manifest as higher taxes and lost jobs.
Republican economist Larry Kudlow said the move is a “blunt instrument” that could have a negative impact on US consumers and companies. “Tariffs are taxes – and the ones that suffer most are the users…it will be painful.”
Ford Motor Company warned the steel tax could harm the “competitiveness of American manufacturers.”
House Speaker Paul Ryan (R-WI) warned of “unintended consequences” and has urged Trump to consider other approaches before moving forward.
The plan is a “huge job-killing tax hike,” argues Utah Senator Mike Lee (R). “While I am sympathetic to the issues facing domestic steel manufacturers, there must be a better way to address the steel industries concerns, and I hope Congress and the executive branch can identify an alternative solution before these tariffs are finalized next week.”
Ohio Senator Rob Portman (R) expressed similar concerns, pointing out that his home state has already lost “1,500 steelworkers in the last couple years.” Instead of taxing all countries equally, the Administration should consider a “more targeted approach as to the product and as to the country where it’s coming from,” he added.
In a statement Friday, World Trade Organization Director General Roberto Azevedo said the WTO “is clearly concerned at the announcement of US plans for tariffs on steel and aluminum…The potential for escalation is real, as we have seen from the initial responses of others.”
Canada, which buys more American steel than any other country, has already blasted Trump’s plan as “absolutely unacceptable.”
European Commission President Jean-Claude Juncker promised Europe would respond to the new tariffs by taxing American exports like “bourbon,” “Harley-Davidson,” and “blue jeans.”
President Trump responded to Juncker’s threat by promising to tax European cars. “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US,” he tweeted Saturday.
Exports account for about 12% of the US economy, so a widespread reaction from trade partners could have a big impact on the economy.
Particularly vulnerable is the agriculture sector, which depends heavily on exports.
Major steel exporters to the US such as South Korea, Japan, and Canada, are also big importers of American agriculture. If these countries are looking for a way to punish the US, agriculture is going to be a tempting target.
While the new tariffs will apply to all countries equally, Administration officials have suggested they are prepared to consider exemptions on a case-by-case basis.
President Trump will unveil the details of his plan sometime this week.
Author’s note: Trump is being a bit of a protectionist with steel, but he is keeping his campaign promise to protect US steel production. With some luck, the new tariffs will spur investment and modernization in America’s steel industry. The threats by our trading partners may or may not be real, but Trump is a brutal negotiator and everyone knows it.