PHOTO: Aaron J. Brown
Last week I wrote that “The Steel War is Nigh.”
That day has come.
On Thursday, President Trump announced a 25 percent tariff on most foreign steel. He cited Section 232, essentially arguing that the tariffs were in the interest of American national security. Most nations typically discourage using that nebulous language, because any nation could use it to justify tariffs. But American steel companies have been calling for this for years.
Trump’s decision sent shock waves through the markets and among economic and political leadership.
American steel and mining companies — including local powers like U.S. Steel and Cleveland-Cliffs — saw large stock gains. The Dow Jones average, however, dropped by more than 400 points after the announcement. Not a huge loss, but a noticeable one.
Meantime, members of Trump’s own Republican party seemed to panic over fears that reprisals from China, Canada and Europe could send the price of consumer goods soaring, stalling the economy.
Democrats, many of whom have backed trade protectionism, find themselves split between their free trade and fair trade wings.
Moreover, the process seems to have been short-circuited. Journalist Jonathan Swan explained just how explosive today’s events might be in global trade.
In other words, this is just the kind of chaos that Trump likes. There will be some big winners in the next few months. Meanwhile, the negative effects will take a lot longer to realize. Chief concerns include rising prices for manufactured goods that use steel — cars and appliances, for instance. Trade duty reprisals could hit the U.S. agricultural or tech sectors.
Here on the Mesabi Iron Range in Northern Minnesota, however, most workers and political leaders welcome the news. They believe the tariffs will cause more American iron ore and steel to be used in American products, ensuring a industry boom and stable employment across the Rust Belt.
For a long time the debate over using Section 232 tariffs on steel has been academic. No more. We’re going to find out who’s right soon enough. A lot could go very wrong, but we’ll learn a hell of a lot about economic theory in practice.
The Dow dropped 400 points initially but closed the day down only 71points. Also the market is up big time overall since Trump’s election. Tariffs are needed now because politicians from both parties have sold out the working class for decades.
The big market fall was on Thursday, the day the tariffs were announced. Friday started out down by hundreds, but as you said recovered to only down 70, while the S&P actually rose on Friday.
Trump was quoted as saying the US could win a trade war, and that trade wars can be good.
A couple of things worth noting: people tend to think of China as the target of all this, but Canada is actually our largest source of steel and aluminum. Previous tariff penalties have been targeted to offending countries — usually China lately — but this one applies to all steel and aluminum imports, so Canada, Europe, Japan, South Korea, India, and other countries usually not on the offender list will be hit.
Using the rationale of national defense raises a whole new idea as to justification of trade restrictions, since any country can make the claim with almost no required evidence. Major US exports like aircraft, heavy machinery (Boeing and Caterpillar stock tanked after the announcement,) and agricultural products are likely targets for retaliation. Countries could also easily rationalize that financial services — our actual largest export — are of strategic importance, and cut off access to their markets for US banking and financial services.
Perhaps most important, if the US is going to choose to isolate itself economically through protective tariffs and by creating an unpredictable trade environment, we face the likelihood that other countries will seek other trading partners. The major likely beneficiaries of that are China, India, and the EU (which will be shopping for partners following Brexit.) The Trump administration has already encountered that problem following their cancellation of participation in the Trans Pacific Partnership, with countries like Japan seeking closer relationships with other partners, including China, which in turn made the possible American re-entry into the negotiations an important topic in a recent round of meetings with Asian nations. The prospect of a Canada and a Japan whose most important trading partner is China, followed by the EU and India, is not an attractive one for US businesses.
The US is the most important economy in the world, but for our trading partners it is not the only economy in the world. There is virtual 100% agreement among economists and business people that policies that would isolate us from the rest of the world are not likely to be good for us in the long run. The last time we tried that, it was an important factor in causing the Great Depression.
Great post.
If there’s no punitive action for not playing by the rules, why have rules?
Indeed. That is exactly what the Canadians, the Chinese, the Japanese, and the Europeans are saying about Trump’s proposals, and what may lead to them “punishing” us.
As both Aaron and I have pointed out, this new set of tariffs is not designed to balance out misbehavior by one or more country, as specific punitive tariffs under everyone from Truman on have been, including Trump’s earlier moves on steel and on solar panels and washing machines. These are not moves that will end up being litigated in the WTO as to who is right and who is wrong. These are designed specifically to protect some US industries from competition, fair and unfair, from all comers, on the grounds that the US has a strategic interest in maintaining a viable steel and aluminum industry for military reasons, even if our industries cannot compete on a level field — in fact especially if they cannot.
Unlike previous moves, these tariffs will apply to imports regardless of the behavior of the exporting nation.
We are not in Kansas any more. As Trump acknowledges, this is a shot in a real trade war. He and his advisors are gambling that our trading partners will want to continue broad scale trading with us and buying from us more than they will want to protect their own industries from our attack — as he says, that we will win the trade war. If he is wrong, Katy bar the door.
It’s about time…MAGA. Can you imagine where we’d be if Crooked Hillary was at the helm?
MAGA? — I guess you mean “Mueller Ain’t Going Away,” right?
Brevity is the soul of wit Gerald. If only you’d apply it to all you say.
Remember what Muriel Humphrey told Hubert; “your speeches don’t have to be eternal to be immortal.”
Some confuse wordiness with quality.
Good one, Gerald.
Gerald makes some very good well thought out points.
Short term, USS announced today they are reopening a blast furnace near St Louis that was traditionally supplied with Minnesota pellets when it last ran. This is good for the Range. For now.
Longer term, the price of steel and aluminum in the USA, domestic and foreign, will go up because of the tariffs.
Closer to home, the cost of making a skid steer by ASV in Grand Rapids will go up, where the cost of a similar machine made overseas like a Kubota or JCB won’t.
This is a small example. Think Caterpillar, GM, or Boeing to name a few.
There have been books written by economists on both sides of the political spectrum on the long term effects of tariffs. They generally fall in the neutral to against categories.
For a World War 2 style war we do need a domestic steel industry. Luckily such wars are probably in the past because of technology. We don’t need a thousand bombers to hit one target. One or two will do it now.
Modern wars are more likely to be either one spasmodic nuclear war or low level simmering ones like in the Middle East. Neither needs strategic industries to support it like WW II, Korea, or even Vietnam did.
Buy some popcorn and watch the show. Those economists’ predictions are about to be tested in the real world.
These comments remind me of:
Arctic ice will be gone by 2014
The market will tank if Trump is elected
Mass shootings will stop if another gun law is passed
Florida will be under water by 2016
NFL viewership is down due to Thursday night football
If the age to buy a knife would have been 47 back in 1993, Nicole Brown Simpson would still be alive
The Clinton foundation didn’t collude with foreign actors
The Oscars represent the best of main stream America
I thought Donald Trump running for president was a joke
Mount Kilimanjaro will be snowfree by 2015
Americans will suffer if tax reductions are enacted
Hey, I’m more conservative than many here. Think of it this way. When has a government program accomplished what its stated purpose was? They usually make it worse.
Hi, I’m from Washington and I’m here to help you.
The only difference between then and now is that we now have a President who is putting the needs of the American people first.
In an interesting juxtaposition, the same day that the steel and aluminum tariffs were implemented 11 of our allied countries, including Japan and Canada, signed the Trans Pacific Partnership Agreement, creating a reduced tariff group that excludes the US. This is likely a great day for Chilean soy bean farmers, Canadian wheat producers, Malaysian rice growers, Singapore pharmaceuticals companies, Japanese car and motorcycle makers, Japanese heavy equipment manufacturers, and for the Airbus Corporation. Not so good for GM, Harley-Davidson, Boeing, Caterpillar, and American farmers. For US iron miners we have to wait and see whether the increased prices of foreign steel offsets the increased prices of and loss of market for American end user products.