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Donald Trump: Steel and aluminum tariffs – trade wars will be easy to win

Written By | Mar 4, 2018
Trade War, Tariffs, Steel, Aluminum

Steel Mill – Image by Skeeze available under CCO license

WASHINGTON, March 3, 2018.   President Trump says he will impose punishing tariffs on steel and aluminum imports in a major escalation of his trade offensive.  His own aides were stunned by the announcement.  Economics adviser Gary Cohn opposed the president’s move toward trade wars.  As did Secretary of State Tillerson and Secretary of Defense Mattis.

Republicans in Congress are expressing dismay.

Sen. Patrick J. Toomey (R-PA) called the decision “a big mistake that will increase costs on American consumers, cost our country jobs and invite retaliation from other countries.” Sen. Orrin Hatch (R-Utah), chairman of the Senate Finance Committee, said,

“Tariffs are a tax hike the American people don’t need and can’t afford.”

Adam Brandon, president of the conservative group FreedomWorks, warned that new trade taxes “could be a lethal blow to all the economic success this administration has ushered in”

Investors were shaken by the news. The Dow Jones industrial average sank 586 points, a loss of more than 2 percent.

Understanding President Trump’s tariffs and trade war policy strategy and goals 

In declaring his global trade war, Mr. Trump said it would be “easy to win.”

Economists point out that the president has drawn the blueprints for the most protectionist U.S. trade policy in 100 years.  Eswar Parad, professor of trade at Cornell University, says Trump’s embrace of broad and stiff import restrictions had little precedent in the past century.

He said that the president could succeed in limiting U.S. imports, but it could come at the cost of limiting U.S. exports, hurting growth and trade around the world.

The White House is imposing the steel and aluminum tariffs by utilizing a rarely used legal provision that allows the president to take steps if he can argue that imports threaten the national security of the United States.  Thus far, the president’s comments and Twitter posts have made no mention of national security.

Instead, he makes reference to what he says is an unfair dynamic where the U.S. buys more from other countries than those nations buy from the U.S.

The steel and aluminum tariffs aim is punishing China. Chinahas been driving down prices for those commodities by producing far more than the world can use.

 Steel tariffs are on! Trump to impose them next week. Stocks tank 

But the president’s move will, experts point out, have a limited effect on China because much of the steel and aluminum the U.S. imports actually comes from friends and allies like Canada, Brazil, South Korea and Mexico.

Beyond this, the new tariffs would hurt American businesses that use these metals, including the automobile and construction industries, which will now have to pay more money for a critical raw material.  In turn, American consumers would really pay the tax in increased costs for these products.

Tariff and Trade War consequences

It is difficult to believe that Mr. Trump has thought through the consequences of a trade war.  Not only would his tariffs on steel and aluminum raise consumer prices for Americans, but they would almost certainly provoke a response from our trading partners, and not just China because the tariffs would apply to all of our trading partners.

The European Union has threatened to retaliate by imposing tariffs of its own on some American goods including blue jeans, bourbon, and motorcycles.  Even with that limited response, it is predicted by Moody’s Analytical that the U.S. would lose 190,000 jobs.

By provoking responses from Canada and Mexico, the tariffs could derail the current renegotiation of the North American Free Trade Agreement. The White House could pull the U.S. out of that agreement, which would erect new and damaging trade barriers on agricultural exports.  It is also possible that other countries would file complaints with the World Trade Organization and the WTO could declare that the tariffs violated global trading rules.

The Trump administration, of course, could ignore this, stirring chaos in the trading system.

The breakdown of NAFTA and global recession

It is estimated that a breakdown in NAFTA alone would cost the U.S. 1.8 million jobs.  A full global trade war would carry far greater risks and could lead to a global recession.

The conservative Wall Street Journal editorial board called the tariffs the “biggest policy blunder of his presidency.”  The top two Republicans in Congress the Senate Majority Leader Mitch McConnell, and the House Speaker, Paul Ryan, implored the president to reconsider.

Ironically, those who voted for Trump would be most seriously harmed by a trade war.

Researchers at the Brookings Institution report that smaller metropolitan areas would be disproportionately harmed.  The ten that were most vulnerable because of their reliance on exports were in Indiana, Texas, Louisiana, South Carolina, and Alabama, all states Trump carried.

Steel tariffs are on! Trump to impose them next week. Stocks tank

“There are more losers than winners” in the Trump policy of raising tariffs, says Monica de Bolle, an economist at the Peterson Institute for International Economics.

“If the point is to protect American jobs, if the point is to protect small and medium-sized businesses, this is exactly the wrong way to do things.”

What the Trump tariffs do is embrace a fading segment of American business and endanger a growing, dynamic sector.  The mills and smelters that supply raw materials, and would benefit from the tariffs, have been shrinking for many years.  Today, they employ fewer than 200,000 people.

On the other hand, the companies that buy steel and aluminum, to make everything from trucks to cans to Coca-Cola cans, employ more than 6.5 million workers, according to a Heritage Foundation analysis.

Does Donald Trump know the history of tariffs on steel?

In 2002, President George W. Bush imposed tariffs of up to 30 percent on steel imports, intending them for three years, but lifted them earlier than expected after European trading partners threatened to retaliate.

A study found that higher steel prices cost more jobs than the number of people employed in the industry at the time.

To say that these tariffs are necessary for “national security” shows how little thought and consideration has gone into this decision.  In fact, the opposite is the case.

“The president is going to quickly find out that you can’t start a trade war with your allies and expect them to work with you on other issues,” said Jamie Fly, a senior fellow at the German Marshall Fund.

“The administration is squandering the little credibility they had with transatlantic partners at a time when they’re asking them to help fix the Iran deal, fight terrorism and increase defense spending.  It will not work.”

Are steel and aluminum tariffs a threat to national security and US domestic goals?

The increased tariffs not only threaten our national security but the president’s domestic goals as well. The tariffs “are inconsistent with the administration’s goal of continuing the energy renaissance and building world-class infrastructure,” says American Petroleum Institute President Jack Gerard.

“The U.S. oil and natural gas industry, in particular, relies on specialty steel for many of its projects that most U.S. steelmakers don’t provide.

In a declaration filled with more bravado than  common sense, the president declared that

“Trade wars are good and easy to win.”

Not long ago he told us that fixing our health care system was “easy.”  He later admitted that it was not as “easy” as he thought.  If he proceeds with his tariffs on steel and aluminum, he will discover that trade wars are not so “easy” to win either.

Allan C. Brownfeld

Received B.A. from the College of William and Mary, J.D. from the Marshall-Wythe School of Law of the College of William and Mary, and M.A. from the University of Maryland. Served as a member of the faculties of St. Stephen's Episcopal School, Alexandria, Virginia and the University College of the University of Maryland. The recipient of a Wall Street Journal Foundation Award, he has written for such newspapers as The Houston Press, The Washington Evening Star, The Richmond Times Dispatch, and The Cincinnati Enquirer. His column appeared for many years in Roll Call, the newspaper of Capitol Hill. His articles have appeared in The Yale Review, The Texas Quarterly, Orbis, Modern Age, The Michigan Quarterly, The Commonweal and The Christian Century. His essays have been reprinted in a number of text books for university courses in Government and Politics. For many years, his column appeared several times a week in papers such as The Washington Times, The Phoenix Gazette and the Orange County Register. He served as a member of the staff of the U.S. Senate Internal Security Subcommittee, as Assistant to the research director of the House Republican Conference and as a consultant to members of the U.S. Congress and to the Vice President. He is the author of five books and currently serves as Contributing Editor of The St. Croix Review, Associate Editor of The Lincoln Review and editor of Issues.