No one should underestimate the escalation of global trade tension that will result from Donald Trump’s decision to impose steel tariffs on national security grounds. Designed for a period of war, the US president’s announcement of a global 25 per cent tariff on steel imports and 10 per cent on aluminium for an unlimited duration is a rare act in the global trading system.
Yet Mr Trump, in blustering form, said he was relaxed about the consequences. “Trade wars are good and easy to win,” the president tweeted, threatening a few hours later to add further unspecified taxes on imports at the US border.
The proposed tariffs on steel differ from the many anti-dumping duties targeted on specific steel products of the Bush and Obama administrations, in their scale, duration and justification. Each is worrying. The combined effect threatens the US economy, the global recovery and Mr Trump’s reputation as a president willing to stand up for the little people in his nation.
The tariffs exceed the recommendations of the commerce department, which estimated a slightly smaller global levy would reduce steel imports by 37 per cent and aluminium by 13 per cent. Covering roughly 2 per cent of US goods imports, these tariffs far exceed those on washing machines and solar panels announced in January. At such a scale, there is no surprise that China, Canada and the EU have already spoken of retaliation.
The losers will be the consumers of steel in the US, including companies manufacturing weapons designed to protect US security, and employees in those industries, who far outnumber the 80,000 steel workers who will gain from the protection. A public eager for an overhaul of US infrastructure will now pay more and many thousands of US jobs will be at risk from countervailing measures introduced elsewhere.
Adding to the costs, the president has pledged to keep the tariffs in place “for a long period”: the 1962 law on which they are based requires little oversight or review. Other countries might be allowed to apply for an exemption, but that is, as yet, unclear.
It is possible that Mr Trump may yet retreat from his rhetoric but the tariffs will undermine, not enhance, US strategic interests. Rather than hitting their intended target, China, which has all but stopped exporting steel to the US, it is America’s allies that will be squeezed hardest — among them Canada, South Korea and Germany.
By invoking national security as the grounds for the new trade barriers, Mr Trump has crossed a line in the international trading system. If the measures are challenged at the World Trade Organization and deemed acceptable, any country will be able to cite national security when it wants to protect a favoured industry; were they ruled non-compliant, the Trump administration would feel tempted to ignore the WTO, undermining the entire basis for international trade. The US is already undermining the WTO’s ability to adjudicate by blocking new judges for its dispute resolution body.
Before such serious consequences become apparent at the WTO, the president’s move is almost certain to provoke retaliation and the threat of an escalation into a full trade conflict. Mr Trump’s Twitter taunts will be hard to ignore in other capitals, for fear that inaction would encourage Mr Trump to adopt further US trade measures.
The US administration said that 2018 would be the year it brought trade troops to the ramparts. We hoped this was a bluff, but now know the US assault brigade are carrying heavy offensive weapons. The president is playing with fire and the casualties will be felt at home as much as abroad.