- - Monday, March 26, 2018

ANALYSIS/OPINION:

Fires, like wars, are easily started. Ending them, less so. And yet, despite warnings from Congress against pursuing outdated protectionist policies, U.S. President Donald Trump refused to be deflected from issuing his latest controversial order imposing steep tariffs on imported steel and aluminum.

The move is designed to demonstrate that Mr. Trump is willing to make good on his pre-election promises to America’s blue-collar voters and follows hard on the heels of January’s 30 percent levy on solar panels imported into the U.S.

But it’s a strategy that’s backfired spectacularly on previous administrations and one that’s unlikely to address the root causes of either the U.S. trade deficit or Chinese overproduction, instead risking the alienation of U.S. allies in Asia (and further afield) and potentially sparking the mother of all trade wars.

The tariffs, which will apply globally apart from specific exemptions, are in part designed to address the issue of China’s past involvement in transshipping aluminum via Vietnam to Mexico for sale in the U.S., so evading U.S. anti-dumping and anti-subsidy duties. And yet, applying tariffs to Vietnam does nothing to solve this issue. Furthermore, it’s feared that leading exporters including Taiwan, Japan, South Korea, India, China, Vietnam and Turkey may now look to dump steel and aluminum onto the Southeast Asian market.

China has already announced its opposition to the tariffs, threatening tit-for-tat retaliation that could adversely impact U.S. exports, while Japan has threatened to file a complaint with the World Trade Organization (WTO). The WTO estimates Chinese economic tariff costs at $689 million — costs that China can pass to U.S. customers, if domestic steel production falls short of demand.

Ironically, China may be one of the countries least affected by the action. China makes roughly as much steel as the rest of the world combined and accounted for only about 2.5 percent of U.S. steel imports in 2017, as well as a tiny fraction of US-imported aluminum. With Canada and Mexico reprieved — for now — it’s likely to be nations such as South Korea and Brazil that bear the brunt of the sharp uplift on steel (25 percent) and aluminum (10 percent) — and American consumers who ultimately pay the price.

With a storm surge of controversy over these tariffs, the collateral damage is easily overlooked — especially on home turf. Mr. Trump’s ban puts the spotlight squarely on metals manufacturing, overlooking the fact that America’s trade deficit is in finished products as opposed to raw materials.

While the imposition of tariffs may end up being no more than a minor irritation for China’s steelworks, it could land a devastating blow to those U.S. industries that are the biggest consumers of steel. American automotive, aerospace and machinery manufacturers alike will all suffer from an uplift in the cost of metals that will dent profits and threaten jobs.

But the action has also stoked unrest in formerly friendly quarters. That Mr. Trump has invoked national security as the justification for the punitive measures has caused particular consternation to U.S. allies around the world, resulting in a swath of retaliatory responses. The European Union (EU) has threatened tariffs on iconic American products like bourbon whiskey while foreign trade officials in Brazil have said the country will take “all necessary steps” to protect its interests.

The idea that the president might also use tariff exemptions for Mexico and Canada as a bargaining chip during NAFTA negotiations has also caused ill feeling among the country’s nearest neighbors.

There’s no doubt that both industries have been hurt by imports that account for around a third of the 100 million tons of steel used in the U.S. each year and more than 90 percent of the 5.5 million tons of aluminum consumed.

Nevertheless, experts fear that domestic production couldn’t be increased by nearly enough to meet 100 percent of U.S. manufacturing needs. With the number of people working in industries that use steel outnumbering by far those who work to produce it, the argument for jobs doesn’t stack up: In 2015, steel mills employed just 140,000 workers, while those working for manufacturers using steel numbered more than 6 million.

For aluminum, the figures are even more alarming. America has just 8 aluminum smelting plants with a total annual production capacity of less than 2 million tons; current production falls far short of that number at 785,000 tons. To reach the 80 percent government target would require the recommissioning of almost 700,000 tons of idled capacity.

Even then, high running costs would still make U.S. aluminum noncompetitive, despite import tariffs. What’s more, even a full recommissioning would still add relatively few aluminum industry jobs overall, while higher aluminum prices would put thousands of jobs in other industries at risk.

Mr. Trump may well be hoping to reinvigorate America’s metal industries, saving thousands of jobs and encouraging businesses to buy domestically produced materials. But if prices rise and buyers vanish, any jobs saved may be dwarfed by those lost in other industries that rely on a constant supply of cheap steel and aluminum.

History isn’t on Mr. Trump’s side. Former presidents, including Mr. Obama and Mr. Bush, saw their planned tariffs backfire: In Mr. Obama’s case, it’s estimated that the 1,000 jobs that were saved when Mr. Obama levied a short-lived import tax on tires actually resulted in the loss of more than 3,000 retail jobs.

This tariff not only opens the door to the pursuit of protectionist policies across the globe but will hurt allies in the East and West, too. Apparently, unsatisfied with shooting itself in the foot, America seems intent on crippling its friends as well.

James Borton is a nonresident fellow at the Stimson Center and a contributor to The Washington Times.

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