Since President Donald Trump’s announcement that he would raise tariffs on steel and aluminium, there have been rumblings that chief economic advisor Gary Cohn, who has clashed with Trump over trade policy, would leave the administration. That news broke on Tuesday, after Cohn, who tried to orchestrate an eleventh-hour effort to push Trump to reverse course, failed.
Trump, who was elected on his promise to the American people to put ‘America First’, has experienced his share of setbacks in domestic policy even as the economy has continued to hum (jobless claims have plunged to a 49-year-low and the US labour department added 200,000 jobs in January under his presidency).
The US president has now turned his gaze and his ‘America First’ rhetoric to foreign trade. By planning to impose 25 percent tariffs on steel imports and 10 percent on aluminium, Trump is attempting to roll back the effects of globalisation on the US economy.
The move has met with warnings of economic fallout as congressional Republicans and industry groups pressed Trump to narrow his plan for across-the-board tariffs. Trump has said the tariffs are needed to preserve the American industries and protect national security.
It is worth noting that despite Trump’s claims, trade wars are not exactly easy to win. The president’s argument, in essence, is that high tariffs will force other countries to relent quickly on what he sees as unfair trading practices, and that will wipe out the trade gap and create factory jobs. But the record shows that tariffs, while they may help certain domestic manufacturers, can come at a broad cost. They can raise prices for consumers and businesses because companies pass on at least some of the higher costs of imports and imported materials to their customers. A trade war is also bound to mean that other countries will erect higher barriers of their own against US goods and services, thereby punishing American exporters.
EU countries react swiftly, harshly
The European Union nations reacted swiftly, threatening tariffs on flagship US products. European Commission chief Jean-Claude Juncker on Friday threatened to hit big-name US brands such as Harley Davidson motorbikes, Levi’s jeans and bourbon whiskey with import duties. This prompted Trump to fire back a threat to tax cars from the EU, further fuelling fears of a full-on transatlantic trade war erupting.
“We are looking at possibilities to retaliate, meaning that we will also put taxes or tariffs on US imports to the European Union,” EU trade commissioner Cecilia Malmstroem told the BBC on Monday. Despite Juncker’s headline-grabbing threat to iconic US brands, the hit list the EU is working on does not mention specific businesses, using instead the dry language of customs regulations.
Europe exports around five billion euros’ worth of steel and a billion euros’ worth of aluminium to the US each year, and the commission estimates Trump’s tariffs could cost some 2.8 billion euros. As well as making it harder for European metal to find buyers in the US, tariffs could also mean other foreign producers redirect their output to the EU, pushing the market there down.
The first option envisaged by Brussels consists of “rebalancing” measures to compensate the value of the damage suffered, which it says would be in line with World Trade Organisation (WTO) rules. This would mean taxing certain specific US products to send a political message to Trump — possibly targeting businesses located in states favourable to the president. It would take around three months for these measures to come into effect. Brussels wants to maximise the political impact of its reprisals on the US while minimising the impact of a trade war on European consumers.
European Commission vice-president Jyrki Katainen said on Friday the bloc could form a “coalition of like-minded countries” to file a complaint at the WTO, though this procedure usually takes around two years. Katainen said he understood the US tariffs were more aimed at China, the world’s biggest producer, which has flooded the globe with cheap steel, than the EU. “We don’t talk about it enough but overcapacity in the steel sector is largely due to China,” the senior EU official said.
The United States first became a net importer of steel in 1959, when steelworkers staged a 116-day strike, according to research by Michael O. Moore, a George Washington University economist. After that, US administrations imposed protectionist policies, only to see global competitors adapt and the US share of global steel production decline.