(Analysis) – President Donald Trump’s decision to impose 25% tariff on imports of steel and aluminum is intended to strengthen the American metal industry. He believes the move will save jobs and protect national security.
While the move might bring back many jobs in steel and aluminum factories, most of these jobs would be union jobs that pay more than $20 an hour.
Now, mainstream Republicans, especially those connected to Wall Street and the export business community, are not happy.
Trade experts, such as Chad Bown warned that the consequences of this move can turn out to be unpleasant for the American economy, in the longer term.
In their view, the measure can provoke a trade war without actually resolving the problems it intended to address, in the first place.
Problems that Trump’s tariff imposition intends to address
- Target China for its unfair trade practices, and for dumping cheap steel on the global markets, and therefore depressing prices.
- Strengthen the domestic metal industry by inducing U.S. companies to buy steel and aluminum from U.S. producers.
- Save jobs in steel and aluminum factories.
- Protect national security, as his commerce department has recently reported that the United States would not have enough metal to produce their targeted quantity of F-18 and F-35 fighter jets, and armored military vehicles.
Ways this tariff can backfire
- The new tariff will not impact China much, but rather hurt allies like the European Union and South Korea. Japan’s foreign minister, Taro Kono even stated that this measure can significantly impact the economic and co-operative relationship of U.S. and Japan. The EU trade commissioner also confirmed that they are listing U.S. goods, from peanut butter to bourbon, with retaliatory tariffs.
- If countries start to impose their own tariffs, prices of goods would rise globally and undermine global economic confidence.
- The tariff will adversely impact the U.S. automakers, as it will drive up the price of steel, not just the imported lot but even the steel made in the U.S., considering the country’s consumption, which accounts to 38% of the world’s aluminum and 15% of the world’s steel.
- Products like high tech gadgets, food, furniture, and beverages will be affected by the tariff.
- The United States economy has been on a boom lately, and experts predicted that Trump’s goal of a 3 percent growth this year, can be stagnated as a result of tax cuts to offset the effects of a trade war.
- The move might save some lost jobs in the metal industry, but those would be compensated by the jobs lost in other industries, for instance, if car prices go up, the number of buyers would reduce, thereby leading to a downfall of the American car manufacturing industry.
- Impact of U.S. tariff played an unexpected role in pushing protectionism in the global economy. Farmers in the U.S. fear retaliatory tariffs on crops, such as sorghum and soybeans, the most valuable agricultural export of the country.
Why did Trump take this measure now?
Protecting the American steel industry was the key focus of Trump’s 2016 campaign. Many mills closed in the swing states, which lead to a fall of steel employment of about 1,40,000 today.
The Chinese government is openly blamed by the US for subsidizing the production of the metals in violation of global trade rules, which is then flooded upon the global market at a low-cost with which American steel manufacturers cannot compete.
As a result, Trump plans to simply broaden steel tariffs under a 1962 trade law, which authorizes the president to impose tariffs under a national security rationale.
In 2017, the Commerce Department carried out an investigation to determine if steel and aluminum imports are impacting on US national security.
With a resounding yes in 2018 concluded, President Trump’s intention to apply tariffs under the said 1962 trade law, now seems to be legally-grounded, at least domestically.