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The tariffs are no threat, because they will not stand. Understandably, Trump’s tariffs have frightened markets. After a year during which he pursued pro-growth policies and all but ignored his oTherwise frightening protectionist campaign rhetoric, he suddenly announced 25% tariffs on imported steel and 10% tariffs on imported aluminum. The media has filled with stories of “trade war.” But there is little to fear. Before any of this country’s trading partners can organize a response, domestic steel users and their workers will crowd the White House with complaints about the harm these tariffs will do them and the country. Trump, though usually unpredictable, will have to rescind them, and rather quickly, too.
The White House either plans to use these moves as a bargaining chip in future trade negotiations or it has clearly missed the domestic economic harm they will do. Much more of U.S. production uses steel and aluminum than manufactures it. According to the Labor Department, the steel industry employs about 140,000 people. Steel users -- autos and appliances, for instance, pipelines and machinery for two others -- employ some 6.5 million. Aircraft production, a huge export industry for the United States, depends heavily on aluminum. This much larger part of the economy will soon object to the increased costs these tariffs will impose on imports and increased pricing leverage they will give domestic steel and aluminum manufacturers. It will marshal its lobbying power and to effect.
As all these more economically significant industries charge more for their products to account for the greater cost of steel and aluminum, living costs to Americans will rise, while those higher prices will also put all its industries at a competitive disadvantage in global markets. Some, rather than pay high prices for the metals, will stop domestic production of select products and import them in finished form from overseas where suppliers that will still have access to cheaper steel and aluminum. Financial markets spoke loudly to these strains, falling sharply on the announcement. The Dow Jones Industrial Average lost about 2 percent in a single day, with the greatest losses among steel users, like autos.
While domestic opposition builds, from both the managements of the injured industries and their workers, this country’s trading partners will retaliate. They will, of course, file objections with the World Trade Organization (WTO), but they will also impose on U.S. products trying to enter their markets. They have certainly done so in the past when confronted with American tariffs and have already threatened to do so again in response to Trump’s. Jean-Claude Junker, president of the European Commission, spoke of “countermeasures.” Canadian Foreign Minister Crystia Freehand immediatly declared that Canada will “defend its trade interests and workers.” China also quickly indicated actions along these lines. All these countries and others have retaliated vigorously in the past to any U.S. import restrictions and done so in areas in which the United States has particular sensitivities, agriculture frequently, no doubt because it is a key U.S. export and a powerful lobby. Junker has spoken of European imports of blue jeans.
Strange, given the White House’s emphasis on security as a reason for the tariff protection, that the original proposals would have fallen on allies worse than adversaries. According to the Commerce Department, Canada supplies 16% of U.S. steel imports and South Korea some 10%. In contrast, China constitutes only some 2.2% of U.S. steel imports and Russia 8.7%. Meanwhile, Canada takes some 50% of U.S. steel exports, something Ottawa will surely have reconsidered as the new U.S. tariffs begin to bite.
Once these trading partners, domestic steel and aluminum users, and those hurt by various retaliations line up, they will exert intense pressure on the White House. The administration has already backed down some by excusing Canada and Mexico and indicating other exceptions as well.
A good model of how things will likely play out emerges from the 2002 experience of then President George W. Bush. He, too, felt for the plight of the domestic steel industry and imposed tariffs on imports of the metal. Trading partners filed complaints with the WTO and considered ways to retaliate. Domestic steel users, including their workers, lobbied the Bush White House. Notably, the United Auto Workers actively joined those against the tariffs. Its members could see how the higher raw materials costs put domestic auto manufacturers at enough of a disadvantage to threaten their jobs. The domestic pressure mostly forced the White House to rescind the tariffs. Bush made the decision long before the WTO could adjudicate the complaints of trading partners.
Of course, Trump is not Bush. He is much more mercurial and belligerent in the clinches. He will less readily reverse himself. Still, what he has done promises to injure so many who also have power that he will likely yield. Even AFL-CIO president Richard Trumka, who heralded the Trump tariffs as a “great first step,” may before too long look over his shoulder and see that many of his members have found a place with the opposition.
If Trump, as he claims, has responded to a Commerce Department report that domestic steel production may fall short of military needs, the White House has better ways to respond than with across-the-board or even selective tariffs. Subsidizing critical mills or even giving the Army Corps of Engineers license to run a mill dedicated to military needs might solve the problem. Neither approach offers a particularly efficient answer from an economic perspective, but either is better than enraging the nation’s allies, much less distorting the economy and raising living costs.
