Outside the Beltway

Donald Trump Expands Idiotic Trade War, Takes Aim At America’s Allies

President Trump is setting off another trade war, this time with some of America's closest and most important allies.

Doug Mataconis · Thursday, May 31, 2018 · 22 comments

The White House announced today that the Administration will be expanding the aluminum and steel tariffs that the President announced in March on American allies in Europe, Canada, and Mexico, revoking an exemption that had been put in place when the tariffs were first announced:

WASHINGTON — The Trump administration said on Thursday that it would impose tariffs on metals imported from its closest allies, a measure certain to strain diplomatic relationships and provoke retaliation against businesses and consumers in the United States.

Tariffs of 25 percent on steel and 10 percent on aluminum from the European Union, Canada and Mexico, which together supply nearly half of America’s imported metal, are to take effect at midnight Thursday, Wilbur Ross, the commerce secretary, said on a call with reporters.

The move follows months of uncertainty during which the Trump administration dangled potential exemptions to to the tariffs in return for concessions on other fronts, including voluntary limits on metal shipments to the United States and reduced tariffs on imports from America.

In trying to create leverage by keeping its trading partners guessing, the administration sowed an atmosphere of chaos among allies as well as manufacturers uncertain about the ultimate impact on their vast supply chains.

After the metal tariffs were first announced in March, the countries targeted on Thursday secured temporary exemptions while the administration continued to negotiate with Canada and Mexico over the North American Free Trade Agreement and with European officials over other trade-related matters.

But Mr. Ross said on Thursday that, although the discussions with the Europeans had continued, there had not been enough progress to warrant either another temporary exemption or a permanent exemption.

The tariffs are meant to make good on President Trump’s promises to protect American industry. But they have prompted a fierce response from United States allies that have already prepared lists of American products they plan to target with tariffs.

American businesses that use steel and aluminum have also objected, as their costs rise and their overseas sources of materials dwindle. The move has even provoked criticism from some corners of the steel and aluminum industries, which are closely integrated with their Canadian counterparts and had fought for an exemption for Canada.

The Aluminum Association, which represents most of the aluminum producers in the United States, said on Thursday that it was “disappointed” by the announcement. Heidi Brock, the association’s president, said the move would do little to address the larger issue of overcapacity in China “while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon.”

These particular tariffs have been justified by the Administration under Federal laws that grant the President the legal authority to impose tariffs when it is deemed necessary to protect American national security. Generally speaking, these laws were adopted with the idea in mind that it is important from a national security point of view to make sure that the industrial base that allows the United States to manufacture military equipment such as tanks, armored vehicle, and weapons without having to rely upon foreign sources that could be cut off in a time of international conflict. Essentially, the Trump Administration has argued, without providing much evidence, that the industrial base of the United States has been weakened by the fact that less expensive aluminum and steel is being imported into the United States. Authorities in the European Union and Canada, which are both significant sources of much of the imported aluminum and steel that comes into the United States, citing both their close alliance with the United States and existing defense agreements. Yesterday, as it became clearer that the previously granted exemption would not be extended, Canadian Foreign Minister Chrystia Freedland called the argument that Canadian steel and aluminum is somehow a threat to American national security “frankly absurd.”

Not surprisingly, the nations impacted by the new tariffs are not reacting positively, and are announcing retaliatory tariffs of their own:

PARIS — Some of the United States’s closest allies are baffled and frustrated by President Trump’s decision to impose steep tariffs on U.S. imports of their steel and aluminum, and officials in the European Union, Canada and Mexico are calibrating how hard to hit back.

“The E.U. believes these unilateral US tariffs are unjustified and at odds with World Trade Organisation rules,” Jean-Claude Juncker, head of the European Commission, said Thursday. “This is protectionism, pure and simple.”

Juncker said the E.U. will introduce a settlement dispute at the World Trade Organization and announce “counterbalancing measures.”

The E.U. had previously released a 10-page list of American products that would be potential targets of retaliation, including bourbon, a specialty of Senate Majority Leader Mitch McConnell’s home state of Kentucky; cranberries, which are grown in House Speaker Paul D. Ryan’s native Wisconsin; and orange juice, which would hit key swing state of Florida.

The European Commission on Thursday said an announcement on countermeasures would come Friday.

President Trump announed the tariffs in March, but had temporarily exempted Canada and Mexico while they were negotiating the North American Free Trade Agreement, and the E.U. while the United States sought to win certain concessions from Brussels, including the E.U. agreeing to a quota limiting European steel exports to the U.S. and a 10 percent decrease to current European tariffs on cars.

But the E.U. refused, repeatedly insisting that it must be permanently exempted from the new tariffs before any further negotiations could take place.

“Today is a bad day for world trade,” E.U. trade chief Cecila Malmstrom said after Thursday’s announcement that the tariffs would finally take effect. “We did everything to avoid this outcome.”

“Throughout these talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU,” Malmstrom continued in a statement. “This is not the way we do business, and certainly not between longstanding partners, friends and allies.”

There has been some division within Europe about how to respond.

France, in particular, has been an outspoken advocate for strong, unified pushback.

“Our U.S. friends must know that if they were to take aggressive actions against Europe, Europe would not be without reaction,” French Finance Minister Bruno Le Maire said Thursday, after unsuccessful meetings with U.S. Commerce Secretary Wilbur Ross in Paris.

President Emmanuel Macron has couched Trump’s tariffs as a “nationalist retrenchment” reminiscent of Europe in the 1930s.

But Germany, Europe’s largest economy, has sought to be a peacemaker in the negotiations, downplaying talk of retaliation and seeking to keep both sides talking.

Germany has perhaps the most to lose among E.U. nations if the spat escalates into a full-blown trade war.

The metal tariffs on their own won’t have much effect on the heavily export-driven German economy. Although Germany is the eighth largest source of steel imports for the United States, the U.S. market amounts to a low single-digit percentage of the overall German steel industry.

But German politicians and industry groups have said they are concerned that tit-for-tat measures could end in damaging tariffs on German automobiles, an outcome that Trump has repeatedly threatened. The administration earlier in May opened a trade investigation into vehicle imports, with the possibility it will end in tariffs on foreign cars justified by the same “national security” provision used to implement the metals tariffs.

Dieter Kempf, president of the Federation of German Industries, said in an interview aired Thursday by public broadcaster Deutschlandfunk that he predicts a “trade spiral” as a result of the tariffs. Both Europe and the United States, he said, would suffer the consequences.

“We’re anticipating that the U.S. president will follow up with further measures, and that’s what primarily worries us,” Kempf said.

Mexico has also announced that it will be imposing retaliatory tariffs on American products:

The government of Mexico announced on Thursday it would implement new duties on various U.S. products in response to President Trump’s decision to levy steel and aluminum tariffs on the country.

“Mexico reiterates its position against protectionist measures that affect and distort international commerce in goods,” the government said in a statement.

“In response to the tariffs imposed by the United States, Mexico will impose equivalent measures to various products like flat steels (hot and cold foil, including coated and various tubes), lamps, legs and shoulders of pork, sausages and food preparations, apples, grapes, blueberries, various cheeses, among others, up to an amount comparable to the level of affectation.”

(…)

Mexico, one of the top exporters of steel to the U.S., said in its Thursday statement that the tariffs “are neither adequate nor justified.” The country is currently participating in negotiations with the U.S. to reform the North American Free Trade Agreement (NAFTA).

Trump had previously threatened to scrap a new NAFTA agreement if Mexico didn’t do more to enforce security at its northern border to prevent migrants from entering the U.S. The Mexican government issued a response saying it was “unacceptable” to use immigration as a precondition for trade.

(…)

Mexico said its countermeasures would remain in place until the U.S. removes the tariffs.

“Mexico reiterates its openness to constructive dialogue with the United States, its support for the international system of commerce, and its rejection to unilateral protectionist measures,” the country said in its statement.

Tonda MacCharles at the Toronto Star, meanwhile, reports that the Canadian government is readying its own response:

OTTAWA—The Canadian government is preparing options including trade retaliation against the United States as high-level talks to resolve a NAFTA logjam and a looming American threat of tariffs against Canadian steel and aluminum imports stall, the Star has learned.

Publicly, the Canadian government is stopping short of an outright threat of trade retaliation in the face of Friday’s deadline when Canada’s exemption from import tariffs — 25 per cent on steel, 10 per cent on aluminum — expires.

Behind the scenes, the Canadian government is preparing “a whole series of options that we can pursue if they do that” which “of course” includes trade retaliation, a senior government official told The Star. “Retaliation is one of our options.”

But the official suggested the U.S. government has exempted Canada from trade tariffs at the last minute before, and might well do so again.

Prime Minister Justin Trudeau spoke to U.S. Vice-President Mike Pence Tuesday, and Foreign Affairs Minister Chrystia Freeland cut short a two-day trip to the U.S. capital, returning to Ottawa Wednesday morning with chief Canadian trade negotiator Steve Verheul after a two-hour meeting with U.S. Trade Representative Robert Lighthizer.

However Trudeau reported no advances or concessions on the U.S. side.

(…)

“Nobody wins in a trade war,” said Liberal MP Wayne Easter, chair of the Commons finance committee and co-chair of the Canada-U.S. Interparliamentary Group. “But the government is considering its options and we will exercise some of those options should this happen, you can be assured of that.”

Easter said tariffs could target “endless products because there’s endless trade. One of the areas the U.S. is certainly most vulnerable is their farm sector. And you know who won all those states in the last election?”

Farm state support was crucial to Trump’s election in 2016.
New Democrat Brian Masse, MP for Windsor-West and a member of the cross-border interparliamentary association, said trade retaliation is risky

This move follows in the footsteps of other provocative trade actions that the Trump Administration has taken in the past several months. In April, and on top of the previously announced tariffs on aluminum and steel, the President announced a series of new tariffs on goods manufactured in China. Among the products impacted by that were flat-screen televisions, medical devices, aircraft parts and batteries, but in the end, there were more than 1,300 different categories of imported goods that would fall within the new duties that the President announced. Within hours after those tariffs were made public, the Chinese announced a series of tariffs of their own that were directed primarily at the American agriculture industry, a move that was arguably made in no small part due to the fact that the Farm Belt went almost unanimously for Trump in the 2016 election. The Chinese tariffs also impacted American cars, chemicals, and other goods. The primary response to all of this tit-for-tat tariff leveling has, predictably, been instability on Wall Street and fears worldwide that we could be headed for a trade war that would be disastrous for all concerned.

Purely from the perspective of basic economics, the extent to which this is an exceedingly bad idea should be blindingly obvious. The only thing that tariffs accomplish is to increase the costs of imported good which will mean higher costs for businesses that rely on any raw materials that are impacted by the tariffs and, ultimately, higher prices for the businesses and consumers that purchase products made from the raw materials in question. Additionally, when tariffs like this are imposed it is seldom the case that domestic manufacturers step in and try to undercut the foreign competition with lower prices. Instead, they tend to increase their own prices so they can benefit from an increase in worldwide prices. This is especially true in this case since, in many cases, the price for these types of goods are determined on international commodity markets rather than being set by individual manufacturers. In other words, tariffs like these are a convenient excuse for these companies to increase their own prices to match the new level set by virtue of the tariff, or perhaps just slightly below it in order to attract customers. In that sense, these tariffs are little more than an indirect subsidy to the American steel and aluminum industry that will no doubt lead them to become enthusiastic fans of the President of the United States. After all, why wouldn’t you become a fan of a guy who makes it harder for people to compete against you while simultaneously allowing you to increase your own prices? For the rest of us, this means that the tariffs will cause prices to go up for everyone regardless of where they purchase their aluminum and steel from.