The Evolution of Trump’s Tariff Proposal

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By: Ryan Bergal

Trump’s “America first” policy agenda surged to a new pinnacle of protectionism on Thursday, March 1st, when he announced a 25% tariff on all imported steel and a 10% tariff on all imported aluminum. Much speculation has risen since the announcement regarding the impacts of the steel and aluminum tariffs, and there is a broad consensus among the international economic community that Trump’s tariffs will provoke an international trade war. While Trump tweeted the day after his announcement that “trade wars are good, and easy to win,” the American president’s ideology of nationalist protectionism does not consider the detrimental impacts that can occur for the United States, both for domestic businesses and international economic and political relationships. Trump has faced backlash from various members of Congress (both Democrats and Republicans), Canada, the European Union, the World Bank and the IMF. In light of temporary exemptions on the tariffs on six nations in addition to the European Union as a whole, the United States could very well enter in a trade war with China due to the tariffs, which would not bode well for the American economy.

Although Trump feels that such tariffs and a potential ensuing trade war would be a positive step forward for America, not all Americans share this belief. US Senator Ben Sasse (R, NE) has argued that Trump’s policy will “kill American jobs – that’s what all trade wars ultimately do.”  After the announcement of the tariff proposal on March 1st, the Wall Street Journal editorial board called the tariffs “the biggest policy blunder of his presidency.” Senate majority leader Mitch McConnell and house speaker Paul Ryan both spoke to the president privately, suggesting that he reconsider his agenda. All things considered, they should be telling Trump to reconsider his proposal. American businesses rely on cheap steel for their own manufacturing, and considering the possibility of a trade war, America has a whole lot more to lose than the economic value of the American steel industry. The New York Times made the important point that “the number of workers who will lose out if countries are cut off from America far exceeds the number who stand to gain from the pending tariffs.” Beyond that, the tariff proposal’s reception by the international community highlights how the “America first” policy can turn the whole world against the US, and create a trade war that will be of nobody’s benefit.

Canadian Prime Minister, Justin Trudeau, initially described the proposed tariffs as “absolutely unacceptable.” Canada’s Foreign Minister Chrystia Freeland threatened that the US’s neighbor to the North would take measures of retaliation against Trump and the United States if Canada is not excluded from the tariffs. America’s biggest source of steel imports is Canada by a wide margin, so the US’s steel industry’s biggest competitor in that sense is Canada. President Trump did issue a temporary exemption on Canada and Mexico from the tariffs, preventing a total unraveling of NAFTA, which Mark Zandi, chief economist of Moody’s Analytics, predicted would result in 1.8 million jobs lost in the United States. While this worst-case scenario does not seem likely considering the exemptions from the NAFTA members, the Economic Policy Institute still believes that the tariffs will result in a net job loss for 10,365 Americans.

The European Union was another actor who was immediately defensive of Trump’s steel and aluminum tariff proposal. Up until the end of March, a trade war between the EU and the US seemed to be quickly developing. After the tariffs were proposed by the American president, Jean-Claude Juncker, president of the European Commission, stated that the European Union “would like a reasonable relationship with the United States, but we cannot simply put our head in the sand.” Members of the European Parliament felt that a trade war between Europe and America was inevitable; Bernd Lange, a German Social Democrat made the claim a “the declaration of war has arrived.” He felt that that Trump’s tariff proposal was part of “a mercantile trade model in their heads that dates back 200 years” that personally threatened the sustainability of America’s relationship with Europe. After Trump’s March 1st proposal, the EU felt that it had no choice but to respond to the American president; Jean-Claude Juncker stated that the European Union would impose tariffs on various American products, including Harley-Davidson motorcycles, bourbon, and Levi’s blue jeans. Donald Trump initially responded to Juncker by arguing that the United States would “simply apply a tax on their cars which freely pour into the US,” but on March 22nd, he issued an exemption from the European Union on the proposed tariffs.

With the two largest sources of steel and aluminum imports, Canada and the European Union,  exempt from the tariffs, a question has risen in the month since their initial imposition as to whom would be affected by the tariffs, and how much this would impact American manufacturing. In addition to the temporary exemptions from Canada, Mexico, and the European Union, Trump also issued temporary exemptions on the tariffs to Argentina, Australia, Brazil, and South Korea. In the midst of all of the backlash from economists and politicians from both the United States and abroad, it does seem that Donald Trump is exerting damage control on his staunch tariff proposal. Although the initial speculation of a trade war with the EU has subsided, there is one nation that seems like a likely opponent to the United States in regards to trade: China. With the widening list of nations that will be exempt from the tariffs, Trump has held a firm ground on maintaining the tariffs against China, primarily due to his accusations of Chinese theft of intellectual property. After issuing the second round of exemptions, the United States proposed tariffs on China of up to $60 billion on a variety of goods, expanding upon the initial steel and aluminum tariffs. China responded to the United States by implementing a 25% tariff on 128 American goods, including pork, wine, soy, cars, and chemicals. Although China’s total $5 Billion in retaliation tariffs only amount to .3% of the American GDP, a trade war with the United States could still impact the American economy, especially at the local level. Soybeans and grains are the second largest American export to China, so top soy-exporting states like Wisconsin, Illinois, and Michigan will likely take a hit economically. Furthermore, aerospace products and parts are the largest sources of American exports to China, and tariffs on this industry could impact the manufacturing industry and major plane companies like Boeing, and the wine tariffs could cause major economic damage to the agriculture and wine production in California’s Central Valley. Furthermore, businesses like General Electric and Goldman Sachs believe the tariffs “will cut off American companies from the world’s most lucrative and rapidly growing market.”

In the month since the initial proposal of steel and aluminum tariffs, the American president has faced significant backlash from a variety of sources. Although initial speculation of an international economic dispute with the European Union and a worst-case scenario situation for NAFTA, have subsided due to a series of exemptions on the tariffs granted to various nations, America’s place within the world economy is still in question due to the tariff proposal. A trade war with China is quickly developing and beyond that, tariffs of steel and aluminum on Russia, Turkey, and Japan will raise prices on metal from such sources, resulting in more costly manufacturing for US firms. There is also the uncertainty of how temporary the imposed exemptions will be, and although a trade war with the EU has subsided, it would be hard to argue that the developments since March 1st have strengthened America’s diplomatic and economic relationship with either Canada or the European Union.

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