Amid talk of a trade war, price increases Trump says, 'We're not backing down' on tariffs
President Donald Trump said on Monday that he is not backing down from his proposal to enact a 25 percent tariff on steel imports and a 10 percent tariff on aluminum.
There have been mixed reactions to the president's plan which he announced on Thursday during a meeting with top U.S. steel and aluminum CEOs. After weeks of publicly weighing new import duties, Trump declared, "We’ll be imposing tariffs on steel imports, and tariffs on aluminum imports. And you’re going to see a lot of good things happen."
Steel and aluminum producers, as well as unions representing those industries, congratulated Trump for fulfilling a campaign promise to create a more level playing field for U.S. producers to compete globally and creating the conditions for producers to reopen facilities and hire back workers.
"We are pleased that the President has decided to use all the tools at his disposal to send a clear message to foreign competitors that dumping steel products into our market will no longer be tolerated," said John Ferriola, the CEO of Nucor, the largest U.S. steel producer.
Century Aluminum CEO Michael Bless pledged to restart the company's idled smelter in Kentucky and hire back workers as soon as soon as the tariffs are in place.
U.S. allies and key trading partners adamantly opposed the measure. Canadian Prime Minister Justin Trudeau called the plan "completely unacceptable" and urged the president not to impose the trade restrictions on Canada, the largest source of U.S. steel imports.
EU Commission chief Jean-Claude Juncker when one step further saying, "This is basically a stupid process." Juncker said the 28-nation bloc would retaliate with tariffs on Harley Davidson motorcycles, Levis blue jeans and bourbon. "We can also do stupid," he added.
Finally, members of the president's own party called on the White House not to impose the tariffs, which could come as soon as this week.
House Speaker Paul Ryan's office issued a statement on Monday saying, “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan."
Ryan cited the impact on Wall Street, which posted losses on Thursday and Friday, erasing the gains made in February. By the end of trading on Monday, all three benchmark indices were up over one percent.
Amid the outcry and threats of a "trade war," members of the Trump administration doubled down, saying there would be no country exemptions, and they see no reason why the president will change his mind on imposing the duties.
Asked on Monday whether he would reconsider the tariffs.
"No, we’re not backing down," the president told reporters at the White House.
IMPACT ON JOBS AND CONSUMERS
The United States is the world's largest importer of both steel and aluminum.
According to the latest data from the Department of Commerce, the United States consumed nearly 100 million metric tons of steel in 2017, more than one-third of it was imported. U.S. aluminum consumption in 2017 topped 5.5 million tons and 90 percent of it was foreign made.
In 2017, Trump took the extraordinary step of beginning an investigation into the national security consequences of America's dwindling domestic steel and aluminum production. As an example, The Commerce Department and the Department of Defense both concluded that U.S. defense industrial base was at risk due to "the systemic use of unfair trade practices" by other countries.
Scott Paul, president of the Alliance for American Manufacturing said Trump's tariffs "are a lifeline for the industry, its workers and our national security." As an example, ArcelorMittal is currently the only domestic producer of Navy armor plate, used to build the Virginia Class Submarines.
Despite the rebound in the U.S. economy and declining unemployment since the end of the recession, steel and aluminum producers have continued to see layoffs, in large part because countries, like China, have been overproducing steel, flooding the world market and driving down the price. The United States, with the most open steel market in the world, has raised concerns about product dumping and overproduction with its partners bilaterally and through the World Trade Organization, but it hasn't produced any results.
"These tariffs are a last resort, but they're essential to leveling the playing field for American workers," Paul explained. "Conversations and dialogue haven't led to any real progress and the American workers have suffered. The tariffs will help to squeeze out the overproduction in the global market and restore a balance that has been long overdue."
The top industries that use aluminum and steel sounded the alarm over the weekend, warning that they would be forced to cut their workforce and raise prices on goods if the tariffs went into effect.
Ford issued a statement explaining that even though the majority of its steel and aluminum comes from U.S. suppliers, "this action could result in an increase in domestic commodity prices — harming the competitiveness of American manufacturers."
The American International Automobile Dealers Association warned that Americans will not only pay more for foreign-brand vehicles, but they "can also expect to bear the brunt of the retaliatory tariffs other countries will almost certainly place on goods manufactured and exported from the United States."
A senior economist for Cox Automotive estimated the tariffs Trump proposed would add about $200 to the total price of a vehicle.
Beverage producers have also rallied together against the aluminum tariffs. In February a coalition including Coca-Cola, PespsiCo, Snapple, Dr. Pepper, Coors and others sent a letter to the White House saying a 10 percent aluminum tariff would translate into $253.3 million in additional costs for beer and beverage producers.
Coors issued a separate statement on Twitter saying the tariffs will lead to job losses across the beer industry. "American workers and American consumers will suffer," the company said.
The Commerce Department has dismissed the claims made by steel and aluminum consuming industries, estimating the tariffs will likely cost the U.S. economy $9 billion, or a fraction of one percent of the total GDP.
According to Claude Barfield, trade policy scholar at the American Enterprise Institute and former consultant to the U.S. Trade Representative, the administration's $9 billion cost estimate fails to account for the fact that other countries will not sit idly by while the U.S. imposes new duties on their exports.
"I think other countries, in contradiction to what the administration argues, are going to retaliate. They're not going to stand still," Barfield said.
Canada and the European Union have threatened to take action in order to protect their interests. Brazil, the second largest supplied or U.S. steel, said it would not rule out "multilateral and bilateral" measures to protect its interests.
Chinese Vice Foreign Minister Zhang Yesui said explicitly that they would respond to the tariffs. "China does not want to fight a trade war with the United States, but we absolutely will not sit by and watch as China's interests are damaged," Zhang said over the weekend. While China supplies less than 2 percent of U.S. steel, it remains America's largest trading partner.
"We don't know how it will play out, but it could have much larger economic consequences if you begin to have a tit for tat sort of trade war develop," Barfield explained.
Trump insisted on Friday that "trade wars are good, and easy to win." Trump and other members of his administration have argued that as the world's largest consumer market, the United States can flex its muscle and limit a country's access to the U.S. market.
There is one problem with that approach, Barfield noted, "There's no winner."
Countries are likely to target tariffs on U.S. imports where it hurts the most. For example, Mexico, the largest importer of U.S. corn, could levy an agricultural tariff. Mexico would certainly be hurt by the action but that is the nature of a trade war.
There has already been speculation that China, the world's largest soy consumer, could retaliate against U.S. growers if the steel and aluminum tariffs are implemented in full.
Paul argues that reality of a trade war is far less likely than headlines would suggest.
"Trade war is a great headline but it really distorts the truth of these matters," he said, noting that he fully expected to hear "heated rhetoric" and threats of retaliation from countries that have benefitted from America's open trade policies.
"Yes, tariffs sound ugly — to elites in particular — but a president shouldn't be afraid to use them if necessary," Paul said. "The truth is, they're a legitimate tool in our trade policy."