By Jerry Pacheco
President Donald Trump on Thursday signed proclamations imposing a 25 percent tariff on foreign steel and 10 percent tariff on foreign aluminum. Canada and Mexico are exempt from the outset, but the details appear dependent on negotiations. After announcing his intention to impose steep tariffs on March 2, Trump tweeted, “When a country 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!” U.S. Commerce Secretary Wilbur Ross said he wasn’t worried that other countries would slap tariffs on U.S. products, “Retaliation isn’t going to change the price of a can of beer. It isn’t going to change the price of a car. It’s not going to. It can’t.”
But the reaction was swift. Prominent Republican leaders expressed dismay at Trump’s move. Sen. Ben Sasse of Nebraska said, “Trade wars are lost by both sides. Kooky 18th-century protectionism will jack up prices on American families and will prompt retaliation from other countries. “Make no mistake, if the president goes through with this, it will kill American jobs. That’s what every trade war ultimately does. So much losing.”
British Prime Minister Theresa May expressed her concerns to Trump by phone. Canadian Prime Minister Justin Trudeau said, “We will continue to engage with all levels of the American administration in the coming days so that they understand that this proposal is unacceptable.” And Douglas Porter, chief economist at the Bank of Montreal added, “We’re pretty consistently flabbergasted that Canada is at the top of the hit parade of trade villains in Trump’s eyes.”
Trump’s action has turned into a day-to-day drama of how the tariffs will specifically be implemented and their short- and long-term effects. While there may be players in the U.S. metals industry that benefit, there are even more people in the metal supply and fabrication industries that will be negatively affected. As of last Thursday, the expectation was U.S. trading partners would respond with reciprocal tariffs. The outbreak of trade wars will act like a tax on U.S. consumers and negatively impact millions of U.S. jobs.
I talked to people in the metal fabrication industry after Trump’s initial announcement, and the response to the tariffs was negative. Companies that export their metal products to Mexico and Canada were particularly fearful of tariff retaliation by those countries if they are not exempted. That could cause job losses and canceled investment. Swedish manufacturer Electrolux halted its plans to build a $250 million production plant in Tennessee, attributing its decision to Trump’s tariff announcement.
As the pushback escalated, Trump had indicated Mexico and Canada would not be exempted from the tariffs if they didn’t cooperate with him on the North American Free Trade Agreement renegotiations, essentially holding NAFTA hostage.
Union Pacific Railroad CEO Lance Fritz said he was talking with U.S. officials to “spread the gospel of what we all know here, which is closing our border won’t create jobs. It’ll destroy jobs, and it’ll destroy the jobs that the president believes he was elected to grow.
“In today’s environment, there’s a number of our U.S. citizens who think that they’ve lost their job as a result of international trade. And to some degree, they’re right. There is a portion of logic there, but it’s grossly misrepresented and not the big story. “If you read the papers, you’d think that manufacturing is dying. We’re just doing it with less people, and that’s mostly about productivity. NAFTA has turned into a dirty word. NAFTA’s really been a boon for us.”
Fritz referred to a Ball State University study that found 88 percent of U.S. manufacturing job losses were directly attributable to gains in productivity.
Trade wars are not ‘good’ and are ‘not easy to win.’ They tend to escalate, and even exporters who are not directly involved in the fight, such as the agricultural sector, can be negatively impacted.
Tariffs can be a powerful tool to address inequities by countries that are not playing by the rules. If a country such as China is over producing a product, which might be subsidized by the government, a tariff on China’s imports might help address the problem. However, an across-the-board action against all steel and aluminum imports such as Trump is proposing, affects countries that are playing by the rules, and U.S. companies vulnerable to retaliation. Whether specific countries are exempted or not, the uncertainty caused by Trump’s action destabilizes companies’ operations and causes unneeded confusion.