Late last week, President Donald Trump proposed 25 percent and 10 percent tariffs on steel and aluminum respectively in the hopes of boosting American metal industries by making imported metals less economically attractive to American producers, according to The Economist. President Trump has also stated over Twitter that the tariffs are intended to bring about a renegotiation of international trade laws, especially the North Atlantic Free Trade Agreement.
The Trump administration has largely articulated the tariffs with national security, as have other Republican-lead drives to increase American production. Claiming that the tariffs are in the interest of national security may protect them from World Trade Organization legislation against tariffs enacted for any other purpose. The World Trade Organization may eventually rule that the national security claim is not enough to justify the tariffs as they did to tariffs enacted by former president George W. Bush, though that ruling took nearly two years.
The tariffs have gained support by individuals who believe that they will increase U.S. aluminum and steel production, though there have also been concerns about the tariffs. With any potential increase in production cost there is concern that those costs may be transferred to the consumer rather than absorbed or avoided by the producer. This has lead many people to think that American producers may charge American consumers more for products made with foreign metals rather than avoid the tariff by buying metals domestically. Senator Orrin Hatch, Republican head of the Senate Finance Committee went so far as to call the tariffs “a tax hike that the American people don’t need and can’t afford.”
Hatch is not the only Republican to speak out against the proposed Tariffs, as House Speaker Paul Ryan and others have also spoken out against the proposed tariffs. Senator Ben Sasse (R, NE) called the tariffs “not a wise thing to do” and commented that, “You’d expect a policy this bad from a leftist administration, not a supposedly Republican one.
Republican critics have pointed out that any tariffs pose a restriction on economic freedom and that stocks sharply fell in response to the President’s proposal as investors fear rising production costs, according to Fortune.
Another concern regarding the tariffs has to do with the fact that more of the U.S. economy is made up of metal producers than metal consumers meaning that for some companies it may be cheaper to shift production out of the United States and into Canada and Mexico. Because Canada and Mexico do not have high tariffs on aluminum and steel and are protected trade partners with the United States through NAFTA, it may be cheaper for companies to outsource production to these neighboring countries where they can use cheaper steel that is still produced outside of the United States.
President Trump has expressed a dislike of NAFTA in the past and has called for renegotiations, though these negotiations would require support from congress while the current tariffs do not.
Tariffs also bring about fear of trade wars which occur when countries make it increasingly difficult for others to buy from them, hurting global production. “If several of the world’s largest economies fall into a trap of ever-escalating trade sanctions or self-imposed embargoes, there is some modest probability (perhaps 10 percent to 20 percent) that global growth will be truly undermined,” Citi Private Bank chief investment strategist Steven Wieting told MarketWatch. At the moment this is unlikely because tariffs are largely restricted by the WTO, but if they find that America’s claim to tariffs for national security are justified it will create a precedent that may encourage other countries to do the same.
While the WTO has not yet given an official ruling on the proposed Tariffs, the organization has also expressed concerns over a trade war and a possible global recession that may follow saying, “[we] must make every effort to avoid the fall of the first dominoes,” according to The Independent.
Though pressures around the world have been mounting since the tariffs were initially laid out, Trump has expressed dedication to the tariffs.
