Trump Escalates Trade War: Steel & Aluminum

If Trump goes down, he's decided to take the world economy with him.

It's no secret that the Trump administration is besieged on all sides now. As White House staffers flee or begin to leave Trump's sinking ship while it takes fire from every conceivable direction, Trump has decided to make a distraction he believes will distract public attention. While hosting American steel executives today, he went against the wisdom of his saner (read: non-white nationalist, non-xenophobic, non-protectionist) advisers. It's the Trump equivalent of damn the torpedoes as far as economic matters are concerned as cooler heads have definitely not prevailed:

President Trump on Thursday said he had decided to impose punishing tariffs on imported steel and aluminum in a major escalation of his trade offensive, disappointing Republican congressional leaders and inviting retaliation by U.S. trading partners.

Speaking at the White House, the president said he had decided on tariffs of 25 percent for foreign-made steel and 10 percent for aluminum. “We’ll be signing it next week. And you’ll have protection for a long time in a while,” the president said. “You’ll have to regrow your industries, that’s all I’m asking.”

While tariffs on steel applied by the United States are fairly common, the stated reasons this time around raise a lot of eyebrows--especially among American trade partners that will be affected. The 2002 tariffs George W. Bush was "conventional" in invoking what are known as "safeguards" in the event of a sudden surge of imports that threatens domestic industry. Ultimately, the United States backed down after two years. Not only did other countries make a WTO case against America, but they won by demonstrating that there was no sudden, sharp increase in America's steel exports. Quite the opposite, in fact.

Probably to get around this line of response by other countries, the United States is now citing that all-purpose chestnut, "national security." While there is a WTO clause concerning when such justifications are valid, it is most likely not going to be considered as such with America's current case. Simply put, it is highly dubious claim that longstanding purchases by US manufacturers of foreign-made steel threaten to undermine US security. Is the situation different now compared to before Trump and his protectionist lackeys? For instance, have foreign producers begun sell the US substandard steel to undermine American safety for use in infrastructure, automobile manufacture and so on? I don't think so.

The president’s move, relying upon a little-used provision of U.S. trade law, is expected to trigger immediate legal challenges by U.S. trading partners at the World Trade Organization and invite retaliation against American exports.

Trump also turned back pleas from companies that are heavy users of steel and aluminum, including automakers, who warn that higher prices will hurt their sales and potentially lead to layoffs. In 2002, the last time the United States imposed steel tariffs, steel users blamed the measures for the loss of up to 200,000 jobs.

The likely near-term responses of the others will probably include retaliatory, tit-for-tat tariffs on products which the US exports to them. In the medium term, the affected countries will probably file another multi-country case at the WTO arguing precisely what I've suggested. That is, "national security" justifications as offered by the Trump administration are inadmissible at the WTO dispute settlement mechanism.

Also, expect China to be more proactive this time around. More often than not, it's been at the receiving end of the US filing WTO cases against it. With Trump going bonkers, it needs to make a stand sometime lest it be hit with other protectionist measures:

On Thursday, China’s Foreign Ministry repeated its government’s objections. “The United States is disregarding the rules of the WTO, and China is dissatisfied with this,” spokeswoman Hua Chunying told a regular news conference. She said such measures would affect employment in the United States and affect the interests of the United States’ consumers. “As for the actions of the United States, China will take proper measures to safeguard its legitimate rights and interests.”

Why are Trump steel tariffs made on dubious grounds worse than George W. Bush ones? My view is as stated above: Trump's are made on justifications that are several magnitudes flimsier and won't withstand scrutiny. I predict a rough patch for world trade over the next few months; that much is obvious. However, I also predict that a WTO complaint filed at the WTO against the United States has an even higher chance of succeeding than the earlier (unfavorable) ruling on the Bush steel tariffs. It is then that the US will have to decide--if we get there--whether to withdraw support altogether for an institution it's been the main proponent of all these years. Now that would really set world trade afire. 

However, the rather more likely possibility is that even the Trump administration will back down as pressure from various constituencies and their lawmakers mounts. Remember, there are far more US-based customers of imported steel than there are American steelmakers. My belief is that Trump's trade action is an act of economic desperation as he is under political siege. Ironically, it is the American and, most likely, the wider world economy that will have to suffer the consequences of this vainglorious jackass's attempt to distract from the chaos surrounding the American executive branch..