Ignoring threats of a WTO challenge by the European Union and other potentially harmful countermeasures by China, President Trump is reportedly preparing to impose stiff tariffs on steel and aluminum on Thursday, according to Bloomberg.
Trump has abruptly summoned steel and aluminum executives to the White House – telling them he could announce the tariffs at the meeting, the Wall Street Journal adds.
Last week, media reports said Trump was leaning toward the stiffest trade protections from a bevy of options presented to him by the Commerce Department two weeks ago. These include a tariffs of 25 percent on steel and 10 percent on aluminum from all countries.
However, other sources told WSJ that a final decision on tariffs had not yet been made, and that the meeting could just be an opportunity to consider alternatives.
In its initial study, the Commerce Department and other agencies concluded that imports of cheap steel and aluminum harm US national security and military needs. While Trump is said to favor the broadest measures, Defense Secretary James Mattis has suggested that exemptions could be made. Commerce Secretary Wilbur Ross, a longtime steel executive, has also pushed for the toughest sanctions.
The White House ordered the Commerce Department back in April to look into these issues under the seldom-used section 232 of the 1962 Trade Expansion Act.
Both BBG and WSJ pointed out that tariffs could elicit protests and retaliations from some of the US’s biggest trading partners. The timing of the announcement could also be interpreted as an insult to China. Liu He, President Xi Jinping’s top economic advisor who’s widely believed to be in line to become China’s next financial superregulator as well as head of the PBOC, is visiting Washington this week.
Contrary to the outraged reactions from US trade partners and some pro-free trade economists, UBS’ chief economist Paul Donovan suggested that a 25% tariff on steel and 10% tariff on aluminum wouldn’t have much of an impact on consumers, who could see prices of goods from beer cans to cars move marginally higher. Indeed, the pass-through impact felt by consumers from Trump’s tariffs on solar panels and washing machines would probably be more intense.
The real risk, UBS says, is to markets, which – if history is any guide – could pitch a fit as protectionist rumblings out of the Trump administrations have often harmed stocks and the dollar. Reports late last night that Trump might unveil the sanctions today sent Asian steel stocks lower.
One economist who spoke with Bloomberg said Trump’s tariffs likely wouldn’t have a major impact on global trade on their own – the danger, he said, lies in whether the affected countries (i.e. China, Mexico and Canada) choose to retaliate. China in particular has been accused of flooding the global market with cheap steel to undermine foreign producers.
Chinese bureaucrats are already threatening retaliation.
“The United States has over-used trade remedies and it will impact employment in the U.S. and the interests of U.S. consumers,” Chinese Foreign Ministry spokeswoman Hua Chunying said. “China will take proper measures to safeguard its rights and interests.”
European officials have argued it doesn’t make sense to penalize NATO members in the name of national security.
Trump’s protectionist push comes as free-trade Republicans pressure him to soften the crackdown. However, the decision will likely go over well in Pennsylvania and Ohio – two rust belt swing states that Trump needs to keep in his corner if he wants to win reelection in 2020.
Imposing these tariffs could also complicate the renegotiation of the North American Free Trade Agreement. Canada and the US are already engaged in mini-trade spats over the Trump administration’s decision to slap a massive 300% tariff on C-Series jets produced by Canadian aerospace company Bombardier.
Ironically, Trump’s unveiling of the new tariffs would follow a surprising statement made by Treasury Secretary Steve Mnuchin earlier this week that the president is open to rejoining the Trans-Pacific Partnership – that is, if he could secure a good enough deal.
Trump still prefers bilateral trade agreements over group accords, Mnuchin said.
Any announcement on tariffs likely wouldn’t come until late Thursday, after Trump’s meeting with steel and aluminum executives has concluded.