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Last week President Trump declared that all steel and aluminum imports will face a stiff tariff of 25 and 10 percent, respectively. The blowback has been severe, with criticism from allies in the European Union, Canada and Mexico, as well as from within the White House. Gary Cohn, President Trump’s top economic advisor, has announced his resignation due to the implementation of these tariffs. The implications of these tariffs are unknown, though the fears of a trade war and higher prices on consumer goods are on the minds of many Americans.
President Trump instituted these tariffs to protect the systemically important American steel and aluminum industries. He stated the importance of the tariff by saying “a strong steel and aluminum industry are vital to our national security – absolutely vital.” He also views it as a means of protecting these industries from import dumping which occurs when a country overproduces a good and then sells the surplus of it on the market at a dramatic discount. Countries like China which subsidize steel protection, in large part to keep a segment of the labor force employed, almost invariably overproduce steel, resulting in dumping steel on the world market. Many argue that this practice puts steel plants that have to compete in the free market (without government support) at a disadvantage, and causes many to go out of business.
The reach of the tariffs has been in question from their initial announcement. The final package excludes tariffs on Canada, which exports the most of each good to the U.S., and Mexico. It also allows for an appeal process, granting some leeway for other allied countries and the European Union which has a huge steel industry spread across the vast trading block. On the exemption process, President Trump has said “if the same goals can be accomplished by other means, America will remain open to modifying or removing the tariffs for individual nations, as long as we can agree on a way to ensure that their products no longer threaten out security.” The tariffs will go into effect on March 23.
The Trump administration is going against the consensus of the Republican party by implementing these tariffs. Speaker of the House Paul Ryan has denounced the tariff plan. “I disagree with this action and fear its unintended consequences,” said Ryan.
Ryan is not alone in his party’s conference, with over 107 other Republicans disagreeing with the president’s policy. Senator Jeff Flake (R-AZ) even introduced a bill to nullify these tariffs, saying that “trade wars are not won, only lost.” President Trump implemented the tariffs by executive action under Section 232 of a 1962 law originally designed to restrict importation of goods on the grounds of national security. This threat to national security has been controversial and is viewed as a misinterpretation of the law’s intent.
The impacts of a trade war are real and potentially ugly. The tariffs themselves would likely bring in less than $10 billion in government revenue but could cause economic disruption several times that amount. The EU has announced retaliatory measures directed at several unrelated U.S. exports, like Levi Strauss blue jeans. The politics of economic warfare are being embraced by the White House and foisted onto the American people.