By opting to place heavy tariffs on imports of steel and aluminum, U.S. President Donald Trump is on the surface hoping to protect jobs at home. Yet his policy threatens not only to frustrate trade partners but also cost U.S. workers dear, many analysts as well as global trade bodies fear.
Trump says he will impose next week 25 percent tariffs on steel imports and 10 percent on aluminum in a policy move that has caused consternation around the world, from the European Union to Canada via China.
Steel dumping has been a source of global trade friction for some years but Trump has framed his policy as a matter of economic and national security. This is “because globally there is over capacity in steel, and jobs are concentrated in areas that have suffered from deindustrialization,” said Nigel Driffield, professor of international trade at Britain’s Warwick Business School.
The importance of steel and aluminum in international commerce derives notably from their use in crucial economic sectors such as construction and infrastructure as well as the automobile industry, but also beyond—for instance, aluminum drinks cans.
“Also, in the west there is a tension between those that produce steel, typically in Europe with high energy prices, and those that use steel who are happy to buy cheaper steel from Asia,” said Driffield.
Last year, the United States imported 35.6 million tons of steel—equivalent to some 36 percent of the country’s consumption, worth $33.6 billion, according to analysts from Wood Mackenzie. Yet China, the world’s top steel producer, accounted for a mere 2.9 percent of U.S. imports—and only 1.4 percent of overall Chinese exports of the metal totaling 74.82 million tons.
“Thus, the steel tariffs will not have much impact on Chinese steel exports and China does not have as much to lose as the traditional U.S. trading partners,” noted Wood Mackenzie senior analyst He Ming. “The proposed protection measures will have more negative impact on steel imports from Canada, Mexico and Brazil. South Korea, the largest source of U.S. imports from Asia, will be heavily hit if the U.S. imposes steel tariffs,” he added.
South Korea has already complained to the World Trade Organization over five steel anti-dumping duties and countervailing measures imposed by the United States. Ming concluded in a commentary that the tariffs will “not solve the underlying problem of high cost of steelmaking in the U.S.” and would ultimately cost jobs.
Those concerns were echoed on Friday by the European Union and the WTO, whose director-general Roberto Azevedo noted that “a trade war is in no-one’s interests. The WTO will be watching the situation very closely.”
Trump’s policy may play well initially in the “rust belt”—home to in-decline heavy industry were he picked up a sizeable number of disaffected voters’ ballots in 2016. Asked if the policy will go down well with this constituency, Driffield said: “Well he thinks they will. The rust belt is his key working class constituency. This will play very well with them, who feel that they have been unfairly hit by cheaper competition from Asia.”
But Driffield said any benefits of such protectionism were liable only to prove very short term.
Economists from the Berenberg group, have voiced fears about the longer-term wider impact of what they termed a “wrong-headed” policy. “Whatever the reason, imposition of these tariffs is bad economic policy and its timing is inopportune, in our view,” the group indicated.
Although tariff fees would be dwarfed by overall volume of imported goods, “the danger is if these tariffs adversely jar confidence—perhaps fuelled by foreign retaliation—heightened uncertainties would lead businesses to tone back their expansion plans,” leading to a “material” negative economic impact through reduced trade flows.
The Berenberg group’s Mickey Levy and Roiana Reid said the “history of international trade policy shows that the nations that impose barriers to trade are hurt the most” and said the Trump administration “would be wise to reconsider and withdraw its proposal.”