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Trump’s Tariff Torment

eye on the news

Trump’s Tariff Torment

Domestic and foreign trade pressure will likely force the president to back down. March 5, 2018
Economy, finance, and budgets
Politics and law

After ignoring for months his campaign promise to impose tariffs, President Trump announced last week that he would slap an across-the-board, 25-percent duty on steel imports and a 10 percent levy on aluminum imports. The president claims that his decision was motivated by considerations of national security: a Commerce Department report suggests that domestic steel production might be inadequate for military needs. And some unfair trade practices are also at the root of this decision—Chinese dumping of cheap steel on the global market, especially. The report offered several options for addressing the problem; Trump chose the most severe and broad-based one.

Over time, the White House will have to reckon with the harm that these tariffs will do to the U.S. economy. American industry uses much more steel and aluminum than it manufactures. According to the Labor Department, the steel industry employs some 140,000 people. Steel-using industries—autos and other transportation, appliances, pipelines, machinery, and others—employ some 6.5 million. Aircraft production, a huge export industry for the United States, depends heavily on aluminum. These consumers will object to the higher costs that tariffs will impose on imports and the increased pricing leverage that domestic steel and aluminum manufacturers will enjoy. These economically significant industries will charge more for their products to account for their higher costs, putting them at a competitive disadvantage in global markets. Rather than pay high prices for the metals, some will halt domestic production of certain products, choosing to import them in finished form from overseas suppliers that have access to cheaper materials.

Financial markets responded negatively to the president’s announcement. The Dow Jones Industrial Average dropped about 2 percent on Thursday, with the greatest losses among steel users, like the auto industry. As domestic opposition builds from both owners and workers in the affected industries, foreign-trade partners will retaliate. They will file objections with the World Trade Organization, and, following historical example, they will raise tariffs on U.S. products entering their markets. Jean-Claude Junker, president of the European Commission, has already spoken of “countermeasures.” Canadian Foreign Minister Chrystia Freeland declared that Canada will “defend its trade interests and workers.” China has indicated actions along these lines, too. Agriculture—a major U.S. export and a powerful political lobby—will likely bear the brunt of foreign reprisals.

Trump’s tariffs will hit our allies more than our adversaries. According to the Commerce Department, Canada supplies 16 percent of U.S. steel imports and South Korea some 10 percent. By contrast, China provides only about 2.2 percent of U.S. steel imports and Russia 8.7 percent. Meanwhile, Canada accounts for some 50 percent of U.S. steel exports. Ottawa will surely reconsider its reliance on American steel when the tariffs begin to bite.

The White House will soon face intense pressure from a combination of trading partners, domestic steel and aluminum users, and domestic industries affected by foreign retaliation. To get an idea of how things might play out, consider the 2002 experience of President George W. Bush. He, too, felt sympathetic to the plight of the domestic steel industry and imposed tariffs on imports of the metal. Trading partners filed complaints with the WTO and considered retaliation. Steel-using domestic industries, including their workers, lined up to lobby the Bush White House. Understanding that higher costs for raw materials would put jobs in jeopardy, the United Auto Workers sided with tariff opponents. Domestic pressure largely forced the White House to rescind the policy—and Bush did so before the WTO could adjudicate complaints from foreign trading partners.

Of course, Trump is not Bush. He is much more mercurial and belligerent in the clinches, and he will reverse himself less readily. But what Trump has done promises to injure so many powerful entities that he will likely be forced to yield. Even AFL-CIO president Richard Trumka, who heralded the Trump tariffs as a “great first step,” may look over his shoulder and see that many of his members have found a place with the opposition. These new trade barriers will hurt an American economy that Trump’s polices have helped up to now. My bet is that the president will eventually back down.

Photo by Lukas Schulze/Getty Images

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