Trump Announces New Tariffs On Steel And Aluminum

President Trump has announced that he'll be imposing significant tariffs on steel and aluminum imports. This is an unwise decision.

President Trump announced today that he was imposing stiff new tariffs on the importation of steel and aluminum that seem destined to backfire:

WASHINGTON — President Trump said on Thursday that he will impose stiff and sweeping tariffs on imports of steel and aluminum as he moved to fulfill a key campaign promise to get tough on foreign competitors.

Mr. Trump said he would formally sign the trade measures next week and promised they would be in effect “for a long period of time.” The trade measures would impose tariffs of 25 percent on steel and 10 percent on aluminum. It is unclear whether those would apply to all imports or be targeted toward specific countries, like China, which have been flooding the United States with cheap metals.

The announcement capped a frenetic and chaotic morning inside the White House as Mr. Trump summoned more than a dozen executives from the steel and aluminum industry to the White House, raising expectations that he would announce his long-promised tariffs. However, the legal review of the trade measure was not yet complete and, as of Thursday morning, White House advisers were still discussing various scenarios for tariff levels and which countries could be included, according to people familiar with the deliberations.

Advisers have been bitterly divided over how to proceed on the tariffs, including whether to impose them broadly on all steel and aluminum imports or whether to tailor them more narrowly to target specific countries like China. Imposing tough sanctions would fulfill one of the president’s key campaign promises but could tip off trade wars around the globe as other countries seek to retaliate against the United States.

Gary D. Cohn, the director of the National Economic Council, had been lobbying for months alongside others, including Defense Secretary James Mattis and Rob Porter, the staff secretary who recently resigned under pressure from the White House, to kill, postpone, or at least narrow the scope of the measures, people familiar with the discussions said.

But in recent weeks, a group of White House advisers who advocate a tougher posture on trade has been in ascendance, including Robert Lighthizer, the country’s top trade negotiator, and Peter Navarro, a trade skeptic who had been sidelined but is now in line for a promotion.

The departure of Mr. Porter, who organized weekly trade meetings and coordinated the trade advisers, and the breakdown of the typical trade advisory process has helped create a chaotic situation in which those opposing factions are no longer kept in check. The situation had descended into utter chaos and an all-out war between various trade factions, people close to the White House said.

“Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world,” Mr. Trump said on Twitter Thursday morning. “We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”

The White House has come to the brink of announcing these measures several times in the past eight months, including last June. In recent days, the president appears to have grown impatient for action. In the past few days, supporters of the tariffs have also begun airing televised ads during programs that Mr. Trump has been known to watch.

But foreign governments, multinational companies and the Pentagon have continued to lobby against the measure, arguing that the proposed tariffs could disrupt economic and security ties.

Almost as soon as the announcement was made, the stock market reacted and it wasn’t exactly a positive reaction:

Major stock indexes plunged Thursday afternoon following President Trump’s announcement that he was imposing a 25 percent tariff on imported steel and 15 percent on aluminum.

The news sent the Dow Jones industrial average down more than 500 points, toward a 2 percent decline. The Standard & Poor’s 500-stock index dropped 1.2 percent and the technology-heavy Nasdaq composite was down 1.3 percent.

“Traders are, again, focused on talk of tariffs while investors are focused on earnings growth, continuing low inflation  and highly accommodative interest rates,” said Daniel P. Wiener, chief executive officer of Adviser Investments, a Newton, Mass.-based firm that manages more than $5 billion in assets. “Volatility is back, but that shouldn’t sway investors from their longer-range objectives.”

(…)

Trump announced the tariffs Thursday morning from the Cabinet Room of the White House, where he was surrounded by steel and aluminum executives including Roger Newport of AK Steel, John Ferriola of Nucor,  Dave Burritt of U.S. Steel Corporation, and Tim Timkin of Timken Steel.

The announcement is part of a protectionist approach the president has promised as a way to protect American jobs and industry. But many business people, including manufacturers, don’t  like protectionism because it can raise their materials costs. Wall Street generally doesn’t like tariffs either.

“Protectionism doesn’t work,” said Washington investment manager Michael Farr. ” A fair playing field is essential, but anything that dampens trade is bad for the U.S. economy and markets.  These broad tariffs with not much insight into current imbalances seem ham-handed and clearly were unwelcome by markets.”

As the New York Times reports above this announcement comes at the same time that it is being announced that Peter Navarro, a top critic of free trade ideas and multinational trade agreements is being considered for a promotion.reports, this announcement comes at the same time that Peter Navarro, who has a long record as a critic of American trade policy and multinational trade agreements, is Specifically, Navarro would be promoted from his current position as Deputy Assistant to the President to Assistant to the President. While this sounds like a minor change in status based on the name of the promotion, it is in fact more significant than it appears because it means that Navarro is likely to have more direct access to the President and top aides such as Chief of Staff John Kelly and that he is likely to have a broader role in policy-making, specifically when it comes to international trade and related issues. It’s unclear from the available reports what influence Navarro will have over trade policy, but given the positions that he has held in the Administration to date

President Trump did not go into any real detail regarding who the new tariffs would be imposed upon, or indeed any other details regarding the idea, but the nations that are most likely to be on the losing end of these tariffs could be quite extensive. In addition to the obvious sources for steel and aluminum such as China, India, and South Korea, the United States also imports a good deal of both products from nations such as Canada and other ostensible allies. Whether these nations would be exempt from the tariffs or have a different level of a tariff imposed against them, is not clear. Even more important than that is how these tariffs are going to be consistent with the obligations that the United States has pursuant to the North American Free Trade Agreement and the agreements that govern the World Trade Organization. Indeed, if these tariffs are put in place it seems likely that the nations that will be negatively impacted by them are likely to force the United States into the dispute resolution processes set up by these trade agreements that could result in penalties being imposed against the United States as a result of its failure to comply with the terms of those international organizations.

As a matter of economics, the extent to which this is a bad idea is rather obvious. Ultimately, increasing the costs of imported steel and aluminum, or any other product for that matter, will mean higher prices for the people to whom the product is being sold. In this case, one of the major customers for these products is the American car industry, which already has to deal with foreign competition in the form of imported vehicles, where both products are used in the manufacture of vehicles and parts. Pushing up the price of raw materials like this means that car makers will be faced with the prospect of either raising prices or swallowing a decrease in revenues in an industry where profit margins can already be fairly thin. To the extent that price increases are passed on to consumers, it will mean that they’ll be paying higher prices for cars. This could also end up being the case for other products that are made out of these products, such as major appliances and other items.

On the other side of the equation, the beneficiaries of these tariffs will be steel and aluminum producers who will suddenly see prices go up or, perhaps, see reduced competition by virtue of the fact that less steel and aluminum are being imported into the United States. Additionally, the tariffs are likely to be a convenient excuse for these companies to increase their own prices to match the new level set by virtue of the tariff, or perhaps just slightly below it in order to attract customers. In that sense, these tariffs are little more than an indirect subsidy to the American steel and aluminum industry that will no doubt lead them to become enthusiastic fans of the President of the United States. After all, why wouldn’t you become a fan of a guy who makes it harder for people to compete against you while simultaneously allowing you to increase your own prices?

While all of this will no doubt provide some short-term benefit to a specific handful of companies, though, that hardly offsets the harm that increased trade barriers and tariffs will bring to the economy as a whole. The devil is still in the details, which will apparently be announced next week, but already this appears to be a bad deal for all but a handful of American companies, and that’s a bad deal for the nation as a whole.

FILED UNDER: Donald Trump, Economics and Business, International Trade, National Security, Politicians, US Politics
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. Kylopod says:
  2. teve tory says:

    not many Trumpers yammering about the glorious stock market for the last month.




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  3. teve tory says:

    I was laid off 2 months ago. I have to find a new career in the next month or two, before the inevitable Trump Recession happens. I’m open to any ideas a former math teacher and hardware geek with a BA in physics and a loathing of programming is up for.

    email address available upon request. :-p




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  4. Daryl's other brother Darryl says:

    This is an unwise decision.

    You should probably set up a macro, or some kind of short-cut, for that sentence.

    And the market dropped another 400 points…after a similar drop yesterday.




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  5. CSK says:

    OT, but McMaster and the ambassador to Mexico, Roberta Jacobson, are bailing.

    Never a dull moment, is there?




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  6. Mister Bluster says:
  7. Mister Bluster says:

    …McMaster and the ambassador to Mexico, Roberta Jacobson, are bailing.

    Trump’s tariff war nudges Cohn toward White House exit
    Politico

    Well oiled machine!!!




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  8. grumpy realist says:

    I snigger at the Brexiters in the U.K. pinning all their hopes on a Deep and Special Relationship between the U.K. and the U.S. rescuing everything. This just reinforces their gullibility.




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  9. grumpy realist says:
  10. Kathy says:

    All those Trump apologists and supporters demanding to know how bad things were with their man in the White House: We’re about to find out.




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  11. Beelzebob says:

    @teve tory: how does one get a BA in physics?




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  12. gVOR08 says:

    Oleg Deripaska, Manafort’s Russian oligarch frenemy, owns RUSAL, a large Russian based international player in aluminum. I was wondering if Trump knew this. After a little googling I find he probably does,

    U.S. producers, along with United Company Rusal have accused Chinese producers of circumventing a 15-percent export tax on primary aluminum by shipping so-called “fake” semi-fabricated products that are intended to be re-melted later, piling pressure on overseas rivals.




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  13. NW-Steve says:

    @Beelzebob:

    how does one get a BA in physics?

    You go to college and major in physics. Many colleges don’t award the BS, while others give the student the choice of BA or BS. Not a big mystery. I did it too.




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  14. grumpy realist says:

    @Beelzebob: It depends on how one’s university slices up its disciplines and under what aegis they stuff them. Some universities shove all of the sciences under the “arts” and only label Engineering disciplines as “Bachelor’s of Engineering” or “Bachelor’s of Science.”

    Yah, I know–a physics person gets a B.A. and not an S.B.!




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  15. grumpy realist says:

    @grumpy realist: I found it ironic that I suddenly POOF was considered an Engineer when I started grad school in Physics. At MIT you’re not.

    And let’s not get into the difference between a Ph.D. and a Doctorate of Science….which at some universities is in fact a secondary higher degree.

    (I know far more about this than I want to because of a report I did many many years ago for the Japanese government.)




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  16. MBunge says:

    Considering the collective history around here of being wrong about Trump, it won’t exactly be a shock if this follows the same pattern. We’ve certainly got the same lack of self-awareness demonstrated by holding up Wall Street as an indicator of what is and isn’t good for the economy. Aren’t those the same happy capitalists who nearly destroyed the world until governments massively intervened to save us all?

    Though some of us were more saved than others.

    Mike




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  17. Kylopod says:

    @MBunge:

    Considering the collective history around here of being wrong about Trump, it won’t exactly be a shock if this follows the same pattern.

    Please name one example of when the consensus view here was proven wrong about the long-term consequences of a Trump policy.




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  18. Jen says:

    @Kylopod: Agreed, but of course, we haven’t yet seen the “long-term consequences of a Trump policy.”

    It just FEELS like it. One week with this administration feels like a month of garbage. It’s like a more extreme version of dog years.




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  19. Mister Bluster says:

    So Bungles:..Pud’s #1 Snuggle Buddy (and I really believe that when he tells me that, he means it. I think he is very insulted by it, which is not a good thing for our country.) just launched an attack on Mar-A-Lago, Florida, USA!
    Did you see it? What is your Savior going to do now?




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  20. Kylopod says:

    @Jen:

    Agreed, but of course, we haven’t yet seen the “long-term consequences of a Trump policy.”

    Of course. That was part of my point. I was responding to MBunge’s argument for dismissing Doug’s arguments about tariffs on the grounds that he was wrong about Trump’s electoral victory. But those are apples and oranges. Like many pundits, OTB’s hosts failed to anticipate Trump’s victory because they couldn’t wrap their head around the idea that so many people would vote for a candidate so obviously unfit for the office. That doesn’t say anything about their ability or lack thereof to accurately assess an issue such as tariffs, which they have been pretty consistent on over the years.




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  21. Hal_10000 says:

    @Beelzebob:

    What Steve said. Not only do I have a BA in Physics, I have an MA in astrophysics. The former because my undergrad institution was a small liberal arts college that gave BAs to everyone; the latter for reasons that are still not entirely clear to me. I think it’s because changing the MA to MS is a pain and no one cares since most masters’ students go on to the PhD anyway.




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  22. MBunge says:

    Thinking that an economic policy that once worked quite well could ever work again? Why, that’s as silly as thinking a country like modern German could have develop “no go” areas where even police are afraid to venture.

    Wait…

    Mike




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  23. Franklin says:

    @teve tory: Maybe find your way into working on sensors? They’re needed for AVs and everything else related to robotics. Oh, they can be useful for health monitoring as well. And environmental monitoring, etc.

    Sorry, I don’t have any contacts; I’m merely on the periphery of this AV tech.




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  24. Franklin says:

    @MBunge: While your unfounded arrogance is tiresome, I would agree it’s not as straightforward as “tariffs always bad,” although I would probably argue that steel and aluminum tariffs are not usually good.




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  25. DrDaveT says:

    @Hal_10000:

    Not only do I have a BA in Physics, I have an MA in astrophysics.

    Hey, I can top that for counterintuitive — I have a “Bachelor of Arts in Engineering” degree in Mathematical Sciences. I was hoping to get a BS in Philosophy to go with it, but the school wouldn’t go along…




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  26. Andre Kenji says:

    test




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  27. Andre Kenji says:

    @MBunge: Tariffs CAN work for countries that are still developing their industries or they CAN work for some export-driven economies(That will have some inefficiencies in their domestic market, specially in the services sector).

    In large economies that are already industrialized they are going to increase costs for consumers and make the economy as a whole less efficient. Take a look how that worked out in Latin America.




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  28. Ben Wolf says:

    The primary effect is more inflationary (meaning downward) pressure on the dollar. The secondary effect is the Federal Reserve will react to that pressure with additional rate hikes, making it more likely the stock market will enter a prolonged stall as financial investors are drawn to bonds.




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  29. wr says:

    @MBunge: “Thinking that an economic policy that once worked quite well could ever work again? ”

    Yes, I certainly think we can all agree that punishing tariffs worked so brilliantly in the late 1920s, so we should definitely repeat that. I mean, what could go wrong?




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  30. Daryl's other brother Darryl says:

    @MBunge:

    Considering the collective history around here of being wrong about Trump

    What are you talking about, Willis?
    We said the Tax Cuts were going to go to the rich. The tax cuts went to the rich. Berkshire Hathaway made an aditional $29B. Paul Ryan pointed to a teacher who made an additional $1.15 a week.
    We said a trillion dollar giveaway to corporations and wall street would goose the stock market. It hit 26,000. Today after the tariff talk it’s back down to 24,000…which was easily predicted.
    Note that wall street is not the economy. The economy, for now,
    is largely unchanged from the way Obama left it. This tariif thing stands a real chance of changing that for the worse, not better.
    We said his moves against Obamacare would be destructive. Premiums now cost individuals and the Governemtn more money for less coverage. And millions fewer are covered.
    We said he is a Russian asset. He has refused to invoke sanctions Congress passed. Putin yesterday showed a video of a missile hitting FLA. Trump went on a twitter rant against Alec Baldwin.
    We said he was going to be the most corrupt president ever. MAGA. Many Are Getting Arrested.
    You think the guys playing ten dimensional chess. We say he is struggling at checkers. Guess who is right.
    Maroon.




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