The Trump Tariff Debacle
United States Secretary of Commerce, Wilbur Ross, reported that a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the European Union, Canada, and Mexico will go into effect June 1, 2018.
Donald Trump and his administration received immediate backlash from several world leaders including Canadian Prime Minister, Justin Trudeau, who stated that the tariffs were “an affront to the long standing security partnership between Canada and the United States.”
Levying such a detrimental tariff on three of the United States’ biggest trade partners directly stems from President Donald Trump’s pattern of ego-driven, reckless decision-making. This protectionist policy will likely spur a trade war between the affected parties. In fact, Mexico has confirmed that retaliatory tariffs on American farm and steel products are already in effect. European Union Commissioner for Trade, Cecilia Malmström, said: “We will impose rebalancing measures and take necessary steps to protect the E.U. market from trade diversion caused by these U.S. restrictions”.
So what exactly does this mean for the United States economy?
President Donald Trump remains true to his “America First” trade policy program and this tariff might protect and create jobs in the United States steel industry. In fact, a new aluminum mill is currently under construction in Ashland, Kentucky - likely to promote employment in more destitute areas in the United States. Unfortunately, the number of jobs to be lost as a direct result of these tariffs is much higher. The Trade Partnership, an economic consultancy group, estimates this number to be over 146,000 - the states of Michigan, Ohio, and Mississippi will be hit hardest.
Businesses in many industries which rely on imported steel and aluminum will be gravely affected due to an increase in prices of these two materials. These costs will likely be passed on to consumers in the form of higher prices. For example, the next time you purchase a car, expect to pay a lot more than you would have before this tariff was imposed.
Paying higher prices means less disposable income to purchase other goods and services (education, healthcare, entertainment) leading to a fall in domestic demand, resulting in higher levels of unemployment. Furthermore, export industries in the United States will presumably struggle to remain competitive in foreign markets because of the counter-tariffs that have been placed on them- expect to see an increase in unemployment in these industries as well.
While Wilbur Ross released a crude statement that the EU would “get over” the tariffs, Donald Trump nor his representatives have addressed anything, thus far.
This entire situation remains a mystery to me since one of Donald Trump’s campaign promises was to increase trade restrictions with China (those talks are currently on hold) - not with the country’s biggest allies. It is highly plausible that Donald Trump is using these tariffs as leverage to ensure that the new NAFTA (North American Free Trade Agreement) deal’s rules be written under his conditions.
But why place trade barriers on the European Union?
It is purely protectionist in nature. Donald Trump wants to increase domestic employment and promote home-grown businesses. However, these outcomes are unlikely.
French Prime Minister, Emmanuel Macron, has alleged that Trump's actions are illegal and not in line with international trade laws that the United States, France, and other European countries have agreed upon. Furthermore, many businesses in the aluminum and steel industry, like Big Aluminum, have publicly denounced these tariffs - not to mention, several Republicans, including Senator Ben Sasse (R-Neb.), who have condemned this political move.
President Trump’s views on economics is extremely narrow-minded and he takes a very simplistic approach to policy-making. It will be interesting to see whether or not these trade restrictions will be uplifted in light of the political turmoil that it has caused.