By Skylar Cheng Geyu
On May 31, the Trump administration imposed tariffs on steel and aluminium from Europe, Mexico and Canada. This decision, however, was not made in a vacuum.
US President Donald Trump hiked his “American First” trade policy into high-gear more than three months ago when he pledged to impose stiff tariffs on steel and aluminium imports. He had said at that time that the intended measures—25% tariffs on steel imports and 10% on aluminium imports—would revive US domestic manufacturing. The announcement was met with worries of a looming global trade war. Stocks tumbled, and protests were heard from several American industries dependent on the metals.
Now, close allies who were initially exempted from the tariffs have been brought under it, a move that many see as entirely misguided.
The initial decision to impose tarries came on the back of a investigation by the Commerce Department in January. In the conclusion of its report, the department said:
“The Secretary has determined that the displacement of domestic steel by excessive imports and the consequent adverse impact of those quantities of steel imports on the economic welfare of the domestic steel industry, along with the circumstances of global excess capacity in steel, are “weakening our internal economy” and therefore “threaten to impair” the national security…”
The Trump administration mulled imposing tariffs on cheap metal imports flooding the US market, mainly from China, while exempting Canada, the EU and Mexico, despite them being the top import sources.
It would make sense for the Trump administration to cite this as a reason for removing the exemption. However, the rational used by the administration to justify the recent move is logically flawed—it must hit the EU, Canada and Mexico with tariffs to stop Chinese manufacturers from flooding the US market with metals, and, in turn, protect American workers.
But Trump seems determined to alienate the US’s traditional close allies. Ironically, it is the EU, Canada and Mexico that he needs to work with to pressurise China to change its economic policies.
The Trump team appears to be living in some sort of fantasy. Chinese steel mills and aluminium smelters continue to toil away, and in reality, American farmers and products are more likely to bear the brunt of these new tariffs.
Trump has repeatedly defended the tariffs and has said that a trade war would, in fact, be a positive development in the context of the US’s current position with its trading partners.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The U.S. has been ripped off by other countries for years on Trade, time to get smart!
— Donald J. Trump (@realDonaldTrump) June 2, 2018
It is likely that the consequences of the new tariffs will mimic that of the previous one. Stocks had fallen even before the tariffs were announced, while shares of American automakers— large consumers of steel and aluminium—declined, as did those of Boeing, over fears of retaliation from other countries.
The EU, Mexico and Canada have vowed, calling the tariffs “pure and simple protectionism”.
Canadian Prime Minister Justin Trudeau said that the tariffs were an “insult” to the longstanding relationship between Canada and the US. Trudeau went so far as to say the move was an affront to the soldiers from both countries “who had fought and died together on the beaches of World War II, on the mountains of Afghanistan and have stood shoulder-to-shoulder in some of the most difficult places in the world.”
Trudeau also announced plans to levy tariffs on American products July 1 unless the US lifts the tariff on Canadian steel and aluminium.
European Commission President Jean-Claude Juncker said it was a “bad day for world trade,” while EU trade commissioner Cecilia Malmström said the EU “will also impose rebalancing measures and take any necessary steps to protect the EU market from trade diversion caused by these US restrictions.”
Impact on India
Back in March when the tariffs were first imposed, India’s trade ministry wrote to the US government asking to be part of the exemptions. “The tariffs will definitely affect our exports. And clearly, as far as the quantum is concerned and the type of steel is concerned, there is no such thing as a security threat to the US,” steel minister Chaudhary Birender Singh had said.
However, India was not exempted.
According to Ravi Sehgal, chairman of the Engineering Export Promotion Council, “Certainly the move by the US would impact India’s engineering exports, maybe not directly but indirectly. The price movement of products would become volatile now.”
Indian exports of steel items to the US are estimated at about $500 million annually. Its share in prime steel imports in the US is 1.28% and 1.12% in aluminium. In 2017, the US was India’s seventh largest export destination for steel, accounting for 5%.
While it remains to be seen what the full impact of action by the EU, Canada and Mexico will be, and how the US’s steel and aluminum tariffs impact ties with other nations, one thing is for certain, American businesses and workers will not be unscathed.
Skylar Cheng Geyu is a writing analyst at Qrius.
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