President Donald Trump has been spoiling for a trade war since before his election. Now, he has taken the first meaningful step with his decision to impose tariffs on steel and aluminum imports. And, as with so many other policies he has supported, he appears to have little understanding of this one.
Invoking a rarely used law that allows the president to restrict trade on national security grounds, Trump said he would impose a 25 percent tariff on steel and a 10 percent tariff on aluminum. He made the announcement Thursday at a hastily convened meeting with executives of those two industries. Many White House aides, including Trump’s chief economic adviser, Gary Cohn, appeared to be caught off guard by the decision; on Wednesday, Cohn had warned that he might resign if Trump went through with the tariff plan.
The administration offered few details about how long the tariffs would be in place and whether they would apply to all countries, including those with which the United States has a trade agreement, like Canada, Mexico and South Korea.
The stock market fell sharply after the announcement because investors feared that the move was the first of several that could result in escalating disputes in which the United States and its trading partners impose new tariffs. Trump seemed to confirm that fear Friday morning when he tweeted that “trade wars are good, and easy to win” — an argument that contradicts virtually everything we have learned about how such scenarios play out.
The steel and aluminum tariffs are ostensibly aimed at punishing China, which has been driving down prices for those commodities by producing far more metal than the world can use. But Trump’s move will have a limited effect on China because much of the steel and aluminum the United States imports actually comes from allies like Canada, Brazil, South Korea and Mexico. Further, the move could hurt U.S. businesses that use these metals, including auto and construction companies, which will now pay more for a critical raw material.
If Trump were truly interested in getting China to reduce its excess production, he would have worked with the European Union, Canada, Japan, South Korea and other countries to put pressure on Beijing. Those nations tend to be closely aligned with the United States and have also been hurt by China’s mercantilist economic policies.
But rather than make common cause with them, Trump has angered U.S. allies with this move. Top officials in Canada and the European Union are threatening to retaliate forcefully against the new Trump tariffs. They could do so by bringing cases against the United States at the World Trade Organization, or by doing what Trump did and unilaterally imposing new tariffs on U.S. exports like soybeans and Boeing planes.
It’s also not clear that these tariffs will help Trump achieve his goal of increasing manufacturing employment in the United States. Experts say for every new job at a steel mill or aluminum smelter that is created by this trade decision, the country could lose as many or more jobs at businesses that use those metals, which will now cost more. This is one of the reasons that trade wars are, in fact, not easy to win.
Trump clearly sees trade as a zero-sum game. He and some of his most protectionist advisers, including Peter Navarro, think that if China and Mexico sell the United States more things than they import from America, they are winning. The president wants to turn the table on them with tariffs and other trade restrictions. But trade is much more complicated than that. Tariffs are blunt instruments that can hurt countries that use them, just as much as they can help.
The steel and aluminum tariffs might, on their own, have only a small impact on the economy. But the greater fear many experts have is that Trump is just getting started and will impose new tariffs on a host of other imports, sending the United States into a much broader trade war, the likes of which the world hasn’t seen since the Great Depression. That would have a large and devastating economic impact, in the United States and around the globe.
