Here Comes the Trade War

Donald Trump announced plans to impose big tariffs on steel and aluminum. The rest of the world won’t just sit there and take it.

US President Donald Trump speaks on steel and aluminum tariffs during a meeting with industry leaders in the Cabinet Room of the White House on March 1, 2018 in Washington, DC. / AFP PHOTO / MANDEL NGAN        (Photo credit should read MANDEL NGAN/AFP/Getty Images)
Big beautiful tariffs.
MANDEL NGAN/Getty Images

Donald Trump haphazardly shuffled the U.S. into the trade battle he’s been yearning for, telling reporters today that he would impose a 25 percent tariff on foreign steel and a 10 percent tariff on aluminum.

The news capped off a baffling morning during which the White House appeared to waffle on whether to formally announce the new duties, the details of which are still officially vague. The administration is still conducting a legal review of the plan and has not said definitively whether it will single out specific nations like China, or tax steel and aluminum imports across the board. But an unnamed industry executive who was briefed on the plan told the New York Times that the “tariffs are expected to apply to all countries.”

These are the kinds of specifics a normal White House would have of course ironed out ahead of time. But this is the Trump Administration, where the one constant is chaos, and officials are deeply divided over trade, a fact that was reflected in this morning’s bumbling rollout. The administration’s protectionist wing—including Commerce Secretary Wilbur Ross, U.S. Trade Representative Richard Lighthizer, and adviser Peter Navarro—has been building the case for tariffs for months. And in February, the Commerce Department released a 262-page report arguing that the president should impose a 24 percent tariff on all foreign steel and a 7.7 percent tariff on aluminum for national security purposes. But the protectionists have met resistance from officials including Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn, who are concerned that a trade fight will drag down the economy.

In the middle of all this sits the Trump himself, who is convinced the United States is being snookered by its trade partners and would love nothing more than to slap Mexico and China with fat border taxes, but is also easily influenced by whoever he speaks to last. According to the Washington Post, the administration’s pro-tariff faction tried to keep the plans for today’s announcement secret from other staffers until the last minute, so that the free traders wouldn’t try to talk Trump out of it. That led to a bout of confusion once word got out, and it briefly seemed unclear whether the president would roll out his plan at all. Until, that is, he finally blurted the numbers out. That’s the sort of chaos and caprice shaping our country’s trade policy.

Regardless of how exactly things shake out, this is probably bad news for anybody who doesn’t work at a steel mill. The argument against tariffs is that they will raise prices for businesses like construction companies and auto makers that use steel as a raw material. That will hurt those companies’ profits and possibly put a crimp on job growth. The argument in favor of tariffs boils down to the fact that U.S. steel manufacturers have been battered over the past two decades by cheap imports from China’s subsidized state-owned factories, which have been producing far more metal than their domestic market can use, creating a global glut that’s weighed on prices in the process.

But it’s not clear China’s overcapacity is still an urgent issue. Shipments from the country to the U.S. have fallen significantly since 2016, when President Obama increased tariffs on certain types of Chinese steel to more than 500 percent, and major U.S. steelmakers reported healthy profits last year.

Obama’s move was also much more narrowly targeted than Trump’s; it was mostly aimed at China, and specifically designed to punish dumping, a practice where companies price their product well below cost to clear out their inventory. The European Union took similar steps in 2016 to stanch of the flow of Chinese imports. Trump, in contrast, may be about to pick a fight with the whole world. And his pretense that these tariffs are necessary to protect U.S. national security may not hold up at the World Trade Organization, meaning that it’s likely some of our major trade partners are likely to retaliate. Europe and Mexico have already vowed to take countermeasures. There’s a strong chance China will too.

These are not idle threats. President Bush was forced to drop steel tariffs he implemented in 2002, in part because the European Union made it clear it would start putting counter-tariffs on products made in swing states in order to exact political as well as economic retribution. Unlike washing machines and solar panels, which Trump has previously imposed tariffs on, steel is a major piece of global commerce, meaning that today Trump may have fired the first wobbly shot in an honest-to-god trade war.

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