Proposed US metal tariffs may lead to international trade war

President Donald Trump recently called for tariffs of 25 percent and 10 percent on imports of steel and aluminum, respectively. The announcement, which was made on Thursday, March 1, has been met with controversy, as investors fear the potential of a trade war. Canada, China and the EU are already reacting by threatening tariffs of their own on imported U.S. goods, which could result in billions of dollars lost.

Trump intends the proposed tariffs on steel and aluminum products to help U.S. companies, as well as ensure the national security of the country. Tariffs may be put into effect as early as next week and are expected to remain for some time. Trump responded to skeptics on Friday, March 2 with a tweet that claimed that “trade wars are good, and easy to win.”

The United States’ trading partners warned that Trump’s plan could likely lead to international boycotts of U.S. products and possibly set off a wave of protectionist policies across the globe. Some of the U.S. products EU officials have said they will put new tariffs on include Harley-Davidson motorbikes, bourbon whiskey, Levi’s jeans, orange juice, cranberries and rice. Furthermore, the EU has detailed a three-step plan to penalize an approximate $3.5 billion of U.S. trade.

These tariffs could lead to billions of dollars in U.S. export losses, which many analysts claim will outweigh the benefits that Trump’s steel and aluminum tariffs could provide the economy.

According to Bloomberg, Vice Chairman of the China Iron and Steel Association Li Xinchuang explained that “Trump’s decision does no good to everyone except a few American steel enterprises,” while harming other industries, including technology companies and agricultural producers. Additionally, the metal tariffs are expected to hurt U.S. manufacturers who use steel and aluminum because the cost for input of their products will rise. This may lead to the decrease of both corporate profits and job creation.

Republicans and conservative groups have voiced their displeasure with Trump’s proposal, many of whom have urged him to change his mind. Speaker of the House Paul Ryan, who is usually supportive of Trump, also disapproved of the proposed tariffs. According to Bloomberg, a spokesperson for Ryan said on March 5 that “we are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan. The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”

Trump has only escalated the conflict, saying he would slap a new tax on European cars if the EU retaliated against his proposed tariffs. In a tweet on March 3, he wrote that “If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there.”

Trump has also put out the possibility of lifting the proposed tariffs, at least for Canada and Mexico, if NAFTA is renegotiated to become more favorable to the United States.

Trump’s announcement led to a dip in the U.S. stock market, with the Dow Jones industrial average falling nearly 1.7 percent on March 1 and the Nasdaq composite and S&P 500 index both declining by 1.3 percent. The dive is due to concerns that many companies will now have to pay more for the steel and aluminum in their products, likely resulting in increased costs to consumers.

The tariff proposal could be challenged at the World Trade Organization. If the organization rules against the United States, the Trump administration’s willingness to follow global trade rules will be tested. Additionally, Congress could potentially stop the president from passing the tariffs, as Article I of the U.S. Constitution gives Congress the power to set tariffs. The president is only able to impose tariffs at his discretion because Congress has passed laws granting him that power. If Republicans in Congress disagree with the new tariff, they could pass laws that strip him of his powers.

In April 2017, Trump ordered an investigation into the implications foreign imports of U.S. steel could pose for national security. This past January, the Commerce Department concluded that cheap foreign steel is a threat to the United States.

According to Vox, the department stated that, “the continued rising levels of imports of foreign steel threaten to impair the national security by placing the U.S. steel industry at substantial risk of displacing the basic oxygen furnace and other steelmaking capacity, and the related supply chain needed to produce steel for critical infrastructure and national defense.”

March 12, 2018

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Estelle Saad

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