Trump’s Tariffs: Industry Protection or Negotiation Tactic?

by Haley Bockhorn

Cover Photo Credits

Nearly a month ago, President Trump announced plans to impose tariffs on all steel and aluminum imports. Though the decision will not be made final until April (2), a 25% steel tariff and a 10% aluminum tariff were proposed (4), to be levied on all trading partners-no exceptions. The idea, the Commander in Chief claimed, was to promote American security interests (4) and build up the steel and aluminum industry after “decades of unfair trade and bad policy”(5). 

Though Trump had been publicly stating his intentions to do this since his campaign (5), the scope and size of the tariffs startled global finance ministers and industry leaders alike. America is the world’s largest consumer of imported steel (1), importing 3.6 tons of it last year (1). A 25% tariff will cost billions, let alone the additional costs the aluminum tariff will incur.  Needless to say, trading partners (including Canada and the EU (5)) threatened retaliation if exemptions were not made.  

Domestically, reactions were mixed. While American steel producers would stand to benefit, industries that rely on steel and aluminum imports (such as the auto and beer industries) would have to absorb increased costs, cutting into profits (6). Additionally, many are worried the tariffs will incite a trade war. Should this occur, American exports would also become subject to tariffs abroad, ultimately harming US agricultural production and again, the auto industry (6). 

One might wonder if the potential threat to American industry is worth the protections the tariffs are promised to bring. It seems, however, that the proposed change in trade policy may have been meant to serve a different purpose: leverage. Trump was quick to relax his no-exemptions rule if countries were willing to negotiate. Just this week, South Korea agreed to open its auto markets and lower steel imports if it was given an exemption to the tariff (3). Argentina, Australia, Brazil, and the European Union were able to gain temporary exemptions, set to last through May 1 of this year (4). Canada and Mexico, with whom the US is currently renegotiating NAFTA, were also made temporarily exempt; new exemptions for each country will be considered only after terms of the new trade agreement are finalized (4). 

Though using tariffs as negotiation leverage has resulted in a few instances of more profitable trade relations (at least in the short run), this policy will not come without eventual losses. China, the main target of the tariffs (and one of the largest consumers of American exports) (7), responded to this tactic by proposing tariffs of its own (7).  Talks are in progress to reach a deal, but the billion-dollar trade deficit (8) America runs with the country will certainly hinder the momentum of any negotiation. What’s more, temporary exemptions will not prevent affected countries from challenging the tariffs at the World Trade Organization in the future. 

If the Trump administration wishes to secure better protections for American industry, as it so claims, it may want to start thinking about trade policy in the long run. 

1.    https://www.reuters.com/article/us-usa-trade-factbox/factbox-top-steel-exporters-to-the-united-states-idUSKCN1GE10I

2.    http://www.reuters.com/article/us-usa-trade-aluminium/trumps-aluminum-imports-tax-will-bite-domestic-industry-idUSKCN1GE2LL

3.    https://www.washingtonpost.com/world/asia_pacific/south-korea-agrees-to-open-auto-market-in-return-for-exemption-from-steel-tariffs/2018/03/26/05eb3b22-3100-11e8-9759-56e51591e250_story.html?utm_term=.a05fd35716d3

4.    https://www.reuters.com/article/us-usa-trade-steel/trump-temporarily-excludes-eu-six-other-allies-from-steel-tariffs-idUSKBN1GZ0ET

5.    https://www.nytimes.com/2018/03/01/business/trump-tariffs.html

6.    https://www.usatoday.com/story/money/2018/03/05/tariffs-trump-impact/395314002/

7.    https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

8.    http://money.cnn.com/2018/03/26/news/economy/china-us-trade-war-talks/index.html