Brief # 13 Economic Policy
April 30, 2018
On May 1st, 2018, the US tariffs on aluminum and steel imports from the EU are set to take affect. The above-mentioned tariffs are an appeasement to the US Steel industry, which has been affected by increased globalization throughout the second half of the 20th century. For example, in 1948 after World War II, the American steel industry produced over half of the world steel output while employing 700,000 people. Now, that figured has dropped to only 11% and employs only 78,000 people. The proposed tariffs will impose a 25% tax on steel products and a 10% tax on aluminum products. Countries most affected by these tariffs are scrambling to prevent President Trump from implementation, amid fears of a global trade war. LEARN MORE
In an effort to prevent the US from imposing these tariffs, President Emmanuel Macron of France and Chancellor Angela Merkel of Germany assembled a united front to convince President Trump. President Macron, displayed his budding “bromance” and savy emotional rhetoric played the “good cop” during his two-day official visit with President Trump, while Chancellor Merkel, armed with an arsenal of facts, figures, and threats of retaliation played the “bad cop” , both pleaded the EU’s case last week for permanent exemption status. Steel and aluminum are especially important to the 28-member states of the EU as they account for 10% of global steel trade or 172.3 metric tonnes of production. In response, the EU has proposed tariffs on selected US products amounting to 7.8 billion USD (the same amount worth of steel EU exports to the US). Interestingly enough, many of these products are produced in state Trump won by double-digit points. It is unlikely if President Macron and Chancellor Merkel’s Pathos-Logos offensive had its intended affect as it appears the May 1 deadline will pass eliminating the temporary waiver tariff exemption granted to EU countries in March.
EU countries are not the only ones in the line of fire of President Trump protectionist nationalism policies. China, who always served as President Trump’s campaign punching bag, will also be affected by the tariff on steel and aluminum. Firmly sitting at the top of the steel world, China is the world’s largest producer of steel accounting for around half of all global trade or 1.68 billion metric tonnes. Steel and Aluminum are some of the few goods in China where surplus outstrip demand providing an opportunity for profit as excess is sent to the world export market. To prevent tariff implementation, on April 10th, China has filed a complaint to the World Trade Organization requesting 60 day consultation with the US arguing the tariffs are in violation of the WTO rules. In response, on March 23 China implemented retaliatory trade measures on beef, pork, apples and other perishable food items – many of these items are also produced in states President Trump carried by double-digits as well.
Argentina, Brazil, South Korea, Canada and Mexico were offered exemption status while countries like Russia, India, Brazil, Taiwan and India were not. These countries are among the world’s largest steel and aluminum producers. A majority of the US steel supply comes from groups that were exempted from the tariff.
If one were to watch the news and listen to president Trump, he/she would think Chinese steel and EU steel account for a lion share of US steel imports. As it the case with most issues, once you set aside politics from fact you will see the fissures between what is widely discussed and the reality on the ground. The reality is China and the EU make up 2% and 4% of US steel imports respectively in 2017 – a small cross-section proportion of aggregate US steel and aluminum imports. Canada, Brazil , South Korea, Mexico and Russia round off the top 5 exporters accounting for 17%, 14%, 10%, 9% and 8%, respectively. US allies would have lost the most if Trump’s initial tariff plans were implemented without second thought or revision.
Like many other policies with this administration, politics is the end and these “sweeping” aluminum and steel tariffs are just the means – less than 25% of US steel imports will actually have any kind tariffs. Fully cognizant of this fact, Chancellor Merkel and President Macron are taking a stand to President in an attempt to set boundaries on potential future tariffs in other industries Trump may want to implement. Although, the US is the world’s largest steel importer accounting for 77% of all global steel imports, the EU make up less than 4% of that total. Europe’s preeminent leaders understand the personality and ego of president Trump. Consider this, what would occur if Trump randomly wanted to institute tariffs on the EU’s three largest export categories, machinery (64. 6 billion USD), pharmaceuticals (55.2 billion USD) or vehicles (54.6 billion USD)? This would represent a significant blow to some of Europe’s largest and most important industries. Certainly, a global trade war would ensue as retaliatory measure would definitely target America’s largest exports to the EU.
The possibility also exist these tariffs were implemented as an affront to China as they received no exemption status. Conventional thinking suggests 2% is not a large amount, but many in the steel industry claim this number is higher. American steel makers claim China engages in a practice called transshipment, where other countries by Chinese steel at lower prices than ship those steel to the US for profit. However, the Department of Commerce investigated and found no evidence of this occurrence. This still has not stopped China from attempting to drive a wedge between the US and the EU by standing together against US protectionism. As of now, there is little chance the EU would unite with China against the US, but should President Trump continue destructive trade policies, a Chinese-EU partnership against the US could foment.
Steel and aluminum tariff are not new. In 2003, president Bush attempted to implement 25-30% tariffs on steel and aluminum imports – which ultimately was a failure. Steel and aluminum are heavily dispersed through the automotive and construction industries; those tariffs would have increased prices on their products. The National Association of Manufactures came out against the tariffs, eventually leading to the WTO ruling the tariffs went out US trade obligations. In less than a year, the tariffs were reversed. It has been proven these tariffs don’t work so what does President Trump have to gain? Once again, it is about politics.
President Trump has a tendency to govern toward his base specially to gain some kind of political expediency. Whether it’s when personal scandals gain traction or to keep his supporters in a perpetual state of anger, these tariffs appear to be another measure to provide his die-hard supporters lip service and quite possibly to distract from other non-economic issues.
- Volunteers for Economic Growth Alliance (VEGA) is a consortium of 24 members NGOs that promoting prosperity by bringing highly skilled workers together across the global. VEGA is also instrumental in advocating for global partnerships as it pertains to trade and economics.
- The Progressive Policy Institute (PPI) was known as Bill Clinton’s personal think tank. They offer progressive policy recommendations that are practical and pragmatic. Their policy expertise is in the field of economics, trade, foreign policy, healthcare, etc.
- The American Liberal Review attempts to “advance a project of resurgent American liberalism of bold reform and visionary politics for the 21st” It accomplishes this by offering a list of many NGOs and Think Tanks that promote liberal economic values.
- “How to Enrich a Country: Free Trade or Protectionism” , the YouTube channel, the School of Life offers an objective view on many topics ranging from philosophy, to history, to relationships, etc. This video provides people with an objective view on the history of the protectionism vs free trade debate.
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