Trump takes the sting out of his tariffs

As promised, President Trump will impose tariffs on steel and aluminum imports, starting March 22. But Trump has made significant concessions, in response to protests from some of America’s key trading partners.

The tariffs — 25% on steel imports and 10% on aluminum imports — will exclude Canada and Mexico. And there will be a provision allowing other trade partners to essentially appeal the tariffs, find ways around them, or make the case that their imports don’t really harm the U.S. economy.

“Any country with which we have a security relationship [can] discuss with the United States and the president alternate ways to address the impairment of our steel and aluminum industries,” a senior Trump administration official told reporters on March 8. “This administration has the ability to modify the order.”

President Donald Trump speaks during a cabinet meeting at the White House, Thursday, March 8, 2018, in Washington. (AP Photo/Evan Vucci)
President Donald Trump speaks during a cabinet meeting at the White House, Thursday, March 8, 2018, in Washington. (AP Photo/Evan Vucci)

Canada is the biggest source of steel imports to the United States, and Mexico is the fourth largest. With those two countries exempt, the burden will fall on imports from Brazil, South Korea, Russia, Turkey, Japan and a bunch of smaller producers. China is the world’s biggest steel producer, but it ranks 11th in terms of imports to the United States. And the United States has imposed a variety of tariffs on Chinese steel during recent years, which has led to a sharp reduction in imports.

The loopholes allow Trump to claim he’s keeping a campaign promise, by going to bat for two heartland industries that have endured sharp cuts in production and employment. Yet they’re also likely to reassure investors and business people worried about trade wars, since there are ways around the tariffs for at least some importers. Those loopholes will blunt the price hikes some purchases of the metals are likely to face, and reduce the likelihood of escalating back-and-forth tariffs.

Trump seeking concessions

The exemptions for Mexico and Canada are contingent on the outcome of efforts to renegotiate the North American Free Trade Agreement, which are underway, with no conclusion imminent. Trump wants concessions from both countries that would boost American-made content in the thousands of products that cross the three nations’ borders every day. Trump may view the exemption from his metal tariffs as a carrot to be dangled during the negotiations, and the threat of ending the exemptions as leverage he can use.

Trump will still have to deal with retaliatory measures imposed on U.S. exports by other countries, in response to Trump’s steel tariffs. European countries are relatively small exporters of steel to the United States, yet they have still threatened proportionate tariffs on American products such as Kentucky bourbon and Harley-Davidson motorcycles built in Wisconsin. Assuming they follow through, markets will be watching closely to see if Trump escalates further—the gloomy trade-war scenario—or backs away, content with his metal tariffs.

The United States routinely imposes tariffs on a wide range of imports, when there’s evidence that foreign producers are selling those products in the United States at artificially low prices. But those tariffs normally apply to a narrow range of products form specific countries that in many cases are subsidized by the home government.

Trump’s steel and aluminum tariffs are different. They’re based not on any finding on uncompetitive practice by a foreign producer, but on a little-used law that allows the president to impose tariffs for national-security reasons – such as during a war. There’s obviously no war, but Trump claims the decline of the American steel and aluminum industries is a national security problem because it threatens “critical infrastructure”—roads, bridges, power plants, water treatment facility, and the like. Trade experts think that’s a stretch, but they acknowledge that Trump has the authority to impose the tariffs. And now, the loopholes give Trump a way of saying imports no longer threaten national security, if he feels like they’ve accomplished their goal at any point in the future.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman

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