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The first shot in President Donald Trump’s trade offensive against American allies will be fired at midnight.
Commerce Secretary Wilbur Ross announced Thursday morning that hefty tariffs on aluminum and steel imports from the European Union, Mexico, and Canada will go into effect Thursday at midnight. Steel imports from those places will be taxed at 25 percent and aluminum imports at 10 percent. Those are huge numbers; the average tariff rate on US-EU traded goods is under 3 percent.
The targeted countries responded almost immediately. Mexico announced it will impose tariffs on American imports in retaliation. EU Trade Commissioner Cecilia Malmström said in a statement that Europe would “impose rebalancing measures,” likely meaning some kind of retaliatory tariff on US imports, and take any other “necessary steps to protect the EU market.” Possible European targets for tariff increases include American bourbon, jeans, and motorcycle exports.
This is a big deal. The EU, Canada, and Mexico are (respectively) the United States’ first-, third-, and fourth-largest trading partners. While steel and aluminum tariffs alone aren’t the end of the world, a trade war — defined as the two sides getting locked in a cycle of retaliatory tariff increases — is.
A serious decline in trade between the US and these three partners would do immense damage to the US economy and create major consequences for the rest of the world. And even if we don’t get there, the tariffs do serious political damage to America’s relationship with its neighbors and most important European allies.
“Most forms of protectionism are pretty stupid,” Dan Drezner, a trade scholar at Tufts University’s Fletcher School, tells me. “The Trump administration had truly innovated in finding the stupidest measures and implementing them in the most destructive way imaginable.”
The dogs of trade war are barking
In Trump’s defense, there is a real problem with global steel markets. The issue, called “overcapacity,” is deceptively simple: There are too many factories making too much steel. When a country has a lot of steel and not enough people to sell it to, its government has an incentive to engage in unfair trade practices that give its steel producers a leg up on their international competition.
The problem, though, is that Europe, Canada, and Mexico are not the real culprits behind overproduction — China is. Trade experts cannot fathom why Trump is targeting these close American partners when they aren’t the real bad guys.
“Most of the unfair trading that’s going on in steel and aluminum is emanating from China, and this action does very little, if anything, to affect China,” Michael Froman, a lead trade negotiator in the Obama administration, told Vox’s Emily Stewart.
“Instead, we’re hitting our closest allies and partners with a set of tariffs under the justification of national security, while the administration is making it more difficult for those allies and partners to work with us jointly to put pressure on China to reduce its excess capacity.”
The immediate impact of these tariffs will be mixed, but probably on net negative. US steel and aluminum industries will now face less international competition, which means they’ll be hiring and producing more.
But it’ll be bad for all the other US industries that depend on cheaper steel and aluminum — little things like construction and manufacturing. One study, from the Council on Foreign Relations, estimates that the steel tariffs will destroy 40,000 jobs in America’s automobile manufacturing industry alone, one-third of the entire domestic steel industry.
The bigger fear, though, is how America’s trade partners retaliate — and how the Trump administration responds to that. If they do in fact follow through on threats to target iconic US industries, it’s easy to imagine Trump escalating by imposing even more tariffs on these countries in response. That is how trade wars get started, with dire implications for the global economy.
So if there’s limited upside to these new tariffs and huge risks, why is Trump going through with them? The answer, experts say, rests less in economics than in ideology.
“The president seems to be following through on his promises of putting America first, in a weird and harmful way,” Paul Musgrave, a professor at the University of Massachusetts Amherst, tells me. “Since the campaign, he has made clear that he views allies as takers and wants to renegotiate the post-World War II liberal trading order to put the screws on them. It’s a callous, extortionate view.”
This idea, that American allies are mooching off the United States, has political as well as economic implications. It suggests to America’s partners that the United States is not a reliable ally and can’t be trusted to have their best interests at heart — putting serious strains on the alliances that have been the bedrock of the international system for decades. Malmström made this linkage explicit in her statement on the tariffs.
“Throughout [our] talks, the US has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU,” she said. “This is not the way we do business, and certainly not between longstanding partners, friends, and allies.”
So this isn’t just a story of normal trade disputes between allies. Rather, it’s of Trump challenging the network of political and economic relationships that essentially every post-World War II president has treated as the foundation of American international influence.
“The long-term question is whether the US can be part of its own liberal rules-based order,” Musgrave says. “It’s telling that North Korea is being offered economic assistance even as longstanding allies are seeing economic warfare.”
