Even though the business press and foreign officials have regularly raised the specter that, say, opposing what looks like dumping or predatory pricing or export subsidies could trigger an oh-to-be-avoided-at-all-costs trade war, Trump may finally be about to start the real deal.
Yesterday, the Administration announced that it would impose 25% tariffs on imported steel and 10% on imported aluminum. The reaction was swift and decidedly unhappy. The Dow fell by over 2% and US business leaders started tearing their hair and rending their garments. From the Wall Street Journal:
A cascade of industry trade groups moved quickly to denounce the moves, including beer and boat makers worried about costlier aluminum, and manufacturers of chemicals, air conditioners, and oil pipelines all concerned about pricier steel inputs.
“It’s going to be expensive,” said Ed Bolas, chief financial officer at DyCast Specialties Corp., a Minnesota maker of parts for products including cutting tools and engines. “All of it will impact the consumer.”….
The decision was controversial inside his own administration, coming over the objections of some top advisers, and surprising many in the White House who first learned of the plans from news reports Wednesday night. Mr. Trump’s Defense Department had weighed in against the move, with a memo cautioning against harm to “our key allies” like Canada and Japan.
Trump has a well-established history of saying he will make big moves and then not delivering. Having said that, if it does follow through, the Administration will rely on a seldom-invoked section of WTO rules which allow members to impose tariffs. The Financial Times quoted EU trade commissioner Cecilia Malmstrom:
Of particular concern, she said, was the Trump administration’s decision to use a national security statute to apply tariffs.
That move would end a decades-old ceasefire on using a loophole in global trading rules intended to be employed only in times of war or other national emergencies. Ms Malmstrom said it also risked undermining the World Trade Organization and provoking other countries to do the same.
The US has apparently tried to apply a little lipstick to this procedural pig. Again from the Journal:
The president justified the tariffs by invoking a little-used Cold War era law that gives presidents broad discretion to curb imports deemed a threat to “national security.” The announcement was based on studies conducted by the Commerce Department, made public last month, which concluded metals imports had eroded the country’s ability to make its own weapons, tanks, and aircraft.
And more may be in the offing:
Trump aides are also weighing a broad package of trade and investment penalties against China, as they complete a detailed study accusing Beijing of widespread theft and expropriation of American intellectual property. Thursday’s decision is aimed in particular at China, whose steel overcapacity has fueled a global glut hampering American producers.
Europe sees itself as having no choice other than to raise its own tariff barriers. Steel and aluminum are in global oversupply, with China the biggest perp. The EU is not going to sit pat and let Europe become the dumping ground for product that would otherwise have gone to the US.
US Commerce Secretary Wilbur Ross acts as if the US is trying to engineer that result: But he should be careful what he wishes for. From Politico:
Europe is facing an all-out trade war, and Donald Trump is not the only adversary.
By slapping steep tariffs on America’s imports of steel and aluminum, the U.S. president on Thursday ignited a global war that is likely to bring Europe into conflict with countries ranging from Brazil to Japan.
As the world’s biggest trade bloc and the second biggest steel producer after China, the EU will play a key role in the impending struggle.
Direct retaliation against Washington will only be one dimension of the broader showdown. The far more complex challenge for Brussels will be calculating how to cope with the sudden shifts in global steel supply caused by Trump pulling down the trade barriers in the U.S.
“We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk” — Jean-Claude Juncker
Big producers such as South Korea, Japan, Brazil and China will now be seeking new markets in Europe, and the EU is already looking to deter them with so-called “safeguard measures.”
Shortly after Trump announced additional tariffs of 25 percent on steel and 10 percent on aluminum, European Commission President Jean-Claude Juncker responded that the EU would take the fight straight back to Washington.
“The Commission will bring forward in the next few days a proposal for World Trade Organization-compatible countermeasures against the U.S. to rebalance the situation,” he [Jean-Claude Juncker] said. “The EU has been a close security ally of the U.S. for decades. We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk. I had the occasion to say that the EU would react adequately and that’s what we will do.”
The EU’s direct retaliation plans are likely to include counterstrikes against iconic U.S. brands such as whiskey from Kentucky, orange juice from Florida and Harley-Davidson motorbikes, which have all been cited as potential targets in previous trade face-offs with the United States.
Even Canada complained about the US plans: “Canada will take responsive measures to defend its trade interests and workers.”
On the one hand, as we discussed earlier this week, globalization and extended supply chains are a major contributor to global warming and no nation seems to regard itself as responsible for the resulting greenhouse gas emissions. Globalization has also been deployed in such a way as to squeeze worker wages, and the pain is moving up the employment food chain. After the crisis, some multinationals like Proctor & Gamble took steps to simplify and shorten their supply chains, but that impulse waned as oil prices stayed low.
However, as US corporate profits have remained at record levels relative to GDP even as US lifespans are falling, a five alarm warning of serious distress in the general public, no one in a position of authority felt inclined to try to address this situation, both from a “worst case” basis, as in addressing obvious-looking abuses, as well as more systematically. Trump’s predilection is to break things because he can. We’ll see soon enough if the collateral damage is limited. People in overextended empires aren’t in a great position to pick fights that could come back to bite them.