Trump Has Announced Massive Aluminum and Steel Tariffs

Here are 5 things you need to know

Chad P. Bown (PIIE)

March 1, 2018
Photo Credit: 
REUTERS/Kevin Lamarque

President Trump has reportedly decided to impose new tariffs of 25 percent on imports of steel and 10 percent on imports of aluminum. This comes after the Commerce Department conducted two lengthy—but mostly closed-door—investigations under Section 232 of the Trade Expansion Act of 1962. Under this law, Commerce Secretary Wilbur Ross concluded that imports of steel and aluminum threaten America’s national security and recommended that Trump impose comprehensive new import restrictions.

Imposing trade restrictions to protect America’s national security would be an unprecedented shift in US policy. While there have been many historical episodes of the US steel industry demanding—and being granted—import protection of some form, what is taking place this time is truly different.

This kind of protection would have tremendous economic and institutional repercussions that will reverberate well beyond the two cases currently on Trump’s desk. Here are five reasons for that:

1) This cuts a significant amount of imports

The two investigations cover about 2 percent of total US goods imports in 2017: Imports of steel were $29 billion and aluminum $17 billion. These two are the largest of all trade investigations the Trump administration has conducted—each involves much more trade than the combined imports hit by Trump’s tariffs on solar panels and washing machines, announced in January.

And the proposed cuts are sizable. Trump’s tariffs would go further than Ross’s recommendations, which aimed to slash steel imports by 37 percent and aluminum by 13 percent. New tariffs would probably boost costs for US automakers, can manufacturers, infrastructure projects, and even defense contractors. Thousands of companies and millions of workers who rely on these metals as inputs would be hit, and eventually consumers will see prices increase.

The size of these imports also means that other countries could not ignore the US move. There would probably be a deep ripple effect.

When the George W. Bush administration imposed restrictions on steel imports in 2002—albeit under a much more conventional “safeguards” law—the European Union, China and many other countries immediately followed suit with their own tariffs to prevent steel trade from being “deflected” into their markets.

US exporters could also be hurt by retaliatory moves. In response to Trump’s new safeguard tariffs on solar panels in January, China began its own investigation into $1 billion of US sorghum exports that could result in Beijing imposing new tariffs—and US farmers losing out.

2) The United States hasn’t triggered protection under the national security law in more than 30 years

The Commerce Department investigation found that import competition was harming the US steel and aluminum industries—and might make them unable to respond to the US military’s needs in a time of war, should it need to go at it alone.

There have been very few attempts to make the national security threat argument for new trade restrictions in modern American history. Since 1962, the United States has conducted just 28 investigations under this national security law, the last being in 2001. And President Reagan last imposed restrictions under this law in 1986 in a case involving imported machine tools.

But the Trump administration imposing steel and aluminum tariffs here may set off more claims that trade poses other threats to national security. In January, for instance, the uranium industry filed another new case.

3) The investigative process under this law was extremely nontransparent

The Trump administration did not inform the public as to what “steel” and “aluminum” products it was investigating until releasing the results of its investigations. Companies, workers and consumers could not have known if their professional livelihood was even part of the inquiry.

This is much less transparent than the more frequently used trade laws of antidumping, countervailing duties and safeguards, of which there have been thousands of investigations in the past 40 years. Under those laws, one of the first items established is the scope of what products are—and are not—being investigated.

In such cases, the government also surveys companies and collects information about the market activity involving those products, allowing for better-informed policy decisions.

4) There is no time limit for new protection or a procedure for its removal under this law

Trump has incredible discretion under this law. Not only does the president get to unilaterally decide on the size and form of the trade restriction to impose—for the products that his administration unilaterally determined were a threat to national security—but he also decides if and when they would ever be terminated.

This is different from the other US trade laws, which contain statutory guidelines and public procedures mandating that the government review and potentially remove barriers if economic circumstances change.

5) Trump imposing restrictions would put the WTO into a lose-lose situation

Even though the World Trade Organization (WTO) allows countries to impose restrictions when there are exigent threats to national security, triggering the excuse poses a fundamental threat to the rules-based trading system. Countries have rarely used the excuse, and for good reason.

Under the WTO, other countries also retain the right to legally contest America’s policies through a formal dispute. Suppose one country were to challenge a Trump national security action on imports:

Scenario A has the partner winning the legal case. But the global political and economic fallout could be devastating. Trump might react by ignoring the legal ruling, or use it as political motivation to pull the United States from the WTO.

Scenario B has the partner losing. This decision is equally problematic as it opens the door for all countries to impose their own national security protection. Beijing might decide to slap tariffs on the $14 billion of imports of US-grown soybeans that it suddenly discovers are a “threat” to China’s security.

Scenario C has no one bringing such a dispute because they fear the consequences of winning. But that might signal a loss of faith that the rules-based system can still manage trade frictions.

National security tariffs put America at risk

The Trump administration made the politically controversial decision in April 2017 to self-initiate these national security cases. Details of the investigations were kept secret, and the decision of whether to eliminate billions of dollars of trade is now up to the president alone. If Trump follows through with tariffs of 25 percent on steel and 10 percent on aluminum, there is no statutory process for ending them. Even the prospect of trading partners legally engaging the WTO to protect their economic interests runs the risk of making matters worse.

Implementing protection in this manner could be a significant turning point for US trade policy.

Chad P. Bown is a senior fellow at the Peterson Institute for International Economics in Washington. With Soumaya Keynes, he hosts Trade Talks, a weekly podcast on the economics of international trade policy. Follow him on Twitter @ChadBown.