Trump’s Tariffs: Policy Like It’s 1929
By John Bostwick, Managing Editor, Radius
The White House announced last Thursday that as of June 1, the US would extend tariffs on steel and aluminum imports from the European Union, Canada and Mexico. These major US trading partners and traditional allies had initially been exempt from a March 1 US order imposing 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports.
The brief White House statement justifies the measures on the grounds that US national security is “threatened by imports of steel and aluminum.” It adds that “the Trump Administration’s actions underscore its commitment to good-faith negotiations with our allies to enhance our national security while supporting American workers.”
Needless to say, the decision to impose the tariffs was not regarded by the affected nations as a good-faith gesture. Each promptly condemned the measures and vowed retaliation.
On the day of the announcement, Canadian Prime Minister Justin Trudeau told reporters: “The American administration has made a decision today that we deplore, and obviously is going to lead to retaliatory measures, as it must. … We regret that. We would much rather move together in partnership.”
Trudeau’s government will, according to Reuters, “impose retaliatory tariffs on C$16.6 billion ($12.8 billion) worth of US exports and challenge US steel and aluminum tariffs under the North American Free Trade Agreement and the World Trade Organization (WTO).”
Meanwhile, Mexico’s government condemned the US’s “protectionist measures,” promising to “impose equivalent measures to various products … up to an amount comparable to the level of affectation.”
The situation is inherently more complicated in the 28-member EU. Some EU countries, such as France, have been vocal in their opposition to the US tariffs. Germany, on the other hand, sends more exports to the US than any other EU country and is therefore reluctant to antagonize Trump, who according to some reports is already “preparing to completely ban German luxury automakers from the US.”
Any retaliatory measures adopted by the EU will have to be approved by all member states. Reuters indicates that EU states have “given broad support to a European Commission plan to set duties on 2.8 billion euros ($3.4 billion) of US exports. These could come into force … June 20, although EU officials said it might take a little longer.”
The EC’s plan includes a list of products that might be subject to retaliatory tariffs. The Washington Post points out that some products on the list almost certainly intentionally target industries in Republican-leaning states that might pressure Trump to reconsider the US tariffs. The Post notes that these products include “bourbon, a specialty of Senate Majority Leader Mitch McConnell’s home state of Kentucky; cranberries, which are grown in House Speaker Paul D. Ryan’s native Wisconsin; and orange juice, which would hit the key swing state of Florida.” Motorcycles are also on the list, which could adversely affect the Wisconsin-based Harley-Davidson.
Some Republican leaders have already condemned Trump’s move in terms as strong as those used by their European, Canadian and Mexican counterparts. The Wall Street Journal quotes Utah Senator Orrin Hatch as saying, “Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers. I will continue to push the administration to change course.”
Senator Ben Sasse of Nebraska was brusquer in criticizing the tariffs: "This is dumb. Europe, Canada and Mexico are not China, and you don't treat allies the same way you treat opponents. … We've been down this road before — blanket protectionism is a big part of why America had a Great Depression. ‘Make America Great Again’ shouldn't mean ‘Make America 1929 Again.’”
Essentially, President Trump and his administration are arguing that the existing playing field for global trade threatens the critical US industries of steel and aluminum. They need to argue on those grounds, since Trump’s authority to impose the tariffs derives from Section 232 of the Trade Expansion Act of 1962. The Act indicates that the president can take action “as he deems necessary” to adjust imports when they threaten national security, provided an investigation by the Commerce Department finds a threat.
The Hill’s Colin Grabow is one of many commentators to remark that justifying the tariffs on national security grounds is (as he puts it) “entirely hollow.” And Trump undoubtedly has other motives, including a strong desire to lower trade deficits. Over the weekend, he tweeted about unfair trade, not national security concerns: “When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The US has been ripped off by other countries for years on Trade, time to get smart!”
The Washington Post explains Trump’s motives this way: “For seven decades, a bipartisan consensus has held that the United States has more to gain, both economically and politically, by expanding the circle of partners with which it trades as freely as possible. For most of his adult life, Mr. Trump has rejected that consensus, claiming that it was actually a kind of corrupt bargain among denationalized elites, American, European and Asian. Now, as president, he is acting on that belief.”
That’s a long quote, but it gets to the heart of what many have pointed out: Trump’s tariffs represent a profound break with the US’s economic line since World War II. The Washington Post notes, for example, that President Emmanuel Macron “criticized the tariffs in a speech on Wednesday as part of a larger ‘nationalist retrenchment’ reminiscent of Europe in the 1930s.”
The Wall Street Journal says that the recently imposed tariffs — along with Trump’s decisions to pull out of the Iran nuclear deal and Paris climate accord — constitute a pattern of “playing down European ties” that have been forged over decades. The paper quotes Germany’s coordinator on trans-Atlantic cooperation as saying last Wednesday: “Europe has now understood that there is a profound change in the trans-Atlantic relationship and have understood the gravity of the situation.” Luxembourg’s foreign minister echoed these sentiments, saying: “Europe was not prepared for a change in the world order. … We were always in favor of free trade, together with the Americans. Now we are in a totally different movie.”
Finance ministers of the Group of Seven met in Canada over the weekend in advance of next week’s meeting of the G7 heads of state. The six non-US finance ministers issued a statement condemning the US tariffs, saying that they (the ministers) “most regret the uncertainty caused by trade actions [i.e., the US tariffs] which run counter to the goal of economic growth” and that “collaboration and cooperation has been put at risk.” The Wall Street Journal observes that it is highly unusual for the G7 to publicly condemn a member country, and “[e]ven more unlikely is the fact that the target of the criticism is the US, which has done more than any other country to establish the free-trade principles upon which the global economy functions today.”
US National Economic Council Director Larry Kudlow told Fox News on Sunday that the criticism of the tariffs from Canada — and presumably from other affected allies — is overblown. He equated the situation to a “family disagreement” that “can be resolved if people work together.” The White House’s March 31 statement, moreover, says that the administration “remains open to discussions” with Canada, Mexico and the EU. Commerce Secretary Wilbur Ross emphasized this last week, reminding an OECD panel, “There can be negotiations with or without tariffs in place. There are plenty of tariffs the EU has on us.”
You could argue that the US administration’s proclaimed willingness to have further discussions about tariffs after imposing them in the first place only creates further uncertainty. The New York Times contends that the current US trade policy “is displaying an erratic, improvised, us-against-the-world quality that is anathema to businesses that must make long-term decisions about how to deploy capital.” The fact that Trump is “flirting” with a trade war on three fronts — China, the EU and fellow NAFTA nations — is not, the Times argues, conducive to the economic stability and reliability that the US has long been known for.
At this point, then, uncertainty over long-term US trade policy is probably the greatest concern for US multinationals, even in the face of proposed retaliatory tariffs on US exports and releated supply-chain concerns.