Trump’s Trade Tariffs Could Signal A New Global War
Is This The Beginning Of The End Of Free Trade?
In a bid to boost American manufacturing and on the grounds of national security, President Trump has signed an order to impose steep tariffs on steel and aluminum imports on Thursady, March 8th. The global levies on these essential commodities that will go into effect on March 23rd will see a 25 per cent tariff on steel imports and 10 per cent on aluminium.
The only countries temporarily exempted are Canada, Mexico and Australia so far. With Canada and Mexico currently in the midst of North American Free-Trade Agreement (NAFTA) re-negotiations with the US, the potential imposition of new tariffs should the talks go awry serves as great leverage for the US to push for more favourable terms.
Are The Tariffs Legal?
Under both US law as well as World Trade Organisation (WTO) rules, they appear to be. To justify his decision, President Trump invoked Section 232 of the Trade Expansion Act 1962—an obscure law that empowers Commerce Secretary Wilbur Ross to determine the national security implications of any import. Based on his assessment report, the President is able to impose without recourse to Congress.
The administration has classified these levies as “safeguard” tariffs, in essence it serves as an emergency shield erected to stop a sudden, unforeseen and damaging import surge that could seriously damage a particular industry thereby threatening national security, according to Reuters.
Though officially legal under WTO rules, the checks and balances to ascertain their validity are weak. Moreover, they are meant to be followed up with an offer of compensation for major supplier countries in the form of lower tariffs on other goods. Since most tariffs are already low, affected countries are allowed to impose their own tariffs on US goods and services but only for three years.
It’s All A Ruse And Everyone Knows It
While the tariffs may been justified legally under the US and WTO laws on the grounds of national security, the excuse is self-evidently spurious, even to other leaders in the US.
In memorandum to Commerce Secretary Wilbur Ross, in response to the report, Defense Secretary James Mattis wrote:
“The U.S. military requirements for steel and aluminum each represent only about 3% of U.S. production. Therefore, DoD does not believe that the findings in the reports impact the ability of DoD programs to acquire the steel or aluminum necessary to meet national defense requirements.”
Moreover, even if the over-reliance on steel imports were truly “weakening the internal economy” and “shrinking [US] ability to meet national security production requirements in a national emergency,” as stated in the report, it’s ironic that President Trump would then grant exemptions to Canada and Mexico – the largest and fourth largest exporters of steel to the US respectively.
Risk Of Tit-for-Tat Escalation
Unsurprisingly, news of the new tariffs has sparked a global outcry from major steel exporters around the world among which countries in Europe and Canada threatened to retaliate in kind. On Friday, European Commission President Jean-Claude Juncker discussed potentially imposing tariffs on blue jeans, bourbon, and Harley-Davidson motorcycles — three iconic American exports. Canadian Prime Minister Justin Trudeau called Trump’s plan “absolutely unacceptable,” and his foreign minister threatened “responsive measures.”
In response on Saturday, Trump tweeted that if the European Union does, in fact, issue retaliatory tariffs, he will then slap tariffs on European cars. With tensions running high, this new tariff could very well escalate quickly into a global trade war.
Though the tariffs are aimed at reviving the steel and aluminum industry, they could indirectly increase the cost of production for the companies that rely on these essential commodities to produce everything from beer cans to cars that could spell higher consumer prices.
Considering the fact that the majority of America’s imports of steel come from Canada, the European Union, Mexico and South Korea, the new tariffs also seem likely to damage U.S. allies more than Trump’s ultimate rival China.