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Trump Unleashes the Dogs of a Trade War


President Donald Trump has announced plans [1] to impose a stiff 25 percent duty on all imports of steel and 10 percent on all aluminum. This comes shortly after he slapped heavy tariffs on washing machines and solar panels [2]. Even those with protectionist inclinations need to know these metals aren’t the industries to protect. Few mining jobs would be saved, while the cost of finished goods will rise and encourage offshoring. And in terms of trade war, it looks to be the equivalent of Sarajevo in June 1914.

Imports make up about a third of the 100 million tons of steel used by American businesses every year, and more than 90 percent of the 5.5 million tons of aluminum. That’s a lot. But let’s be clear that, notwithstanding Trump’s claim [3] at a 2016 campaign rally in Pittsburgh that “China is dumping steel all over the United States,” this is not about dumping (a country subsidizing exports or in some way selling them for less abroad than at home).

How do we know this?

Simple. If dumping is determined, the U.S. can and does take action. Stunningly, the U.S. already had 111 anti-dumping steel duties in effect [4] against 32 nations as of June 2017, along with what are called “countervailing duties” against five of those countries. Were all those countries really dumping? Or has the U.S. already been impeding foreign steel sometimes under false pretenses?

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As for China, by far the world’s largest steel producer and exporter, it sends almost none [5] (directly at least) to the U.S. because they are under 24 sanctions including a massive 522 percent [6] duty on rolled steel implemented two years ago.

The primary exporter of both metals to the U.S? As the South Park song [7] goes, “Blame Canada [4]!” They account for about a third of America’s steel imports, along with about half of aluminum [8] imports. And yet Canada has not been sanctioned for unfair trade practices for either.

Rather, the White House has justified these new tariffs under the seldom-used Section 232 of the 1962 Trade Act [9], which allows tariffs to be imposed without congressional approval if U.S. national security is imperiled. That doesn’t necessarily imply the possibility of U-Boat interdictions. Rather the Act includes as national security:

One concern actually regards a more standard definition of national security. Just one American company, Century Aluminum [10], with three U.S. smelters and one in Iceland, makes the high-purity aluminum needed for such combat aircraft as the Lockheed Martin F-35 and the Boeing F/A-18 Super Hornet, plus some missiles and armor plating for vessels. That’s according to a Commerce Department report [11] urging Trump to take action. Were Century Aluminum to shutter, the U.S. would be reliant on China and the United Arab Emirates. But slapping tariffs on all exporters of both metals to save an aluminum smelter? Better to just subsidize the company until a U.S. or Canadian smelter can be converted.

Likewise, the solar panel and washing machine tariffs were justified by findings that made no pretense of unfair trade practices, as I wrote in another [12] publication at the time.

“We’re going to build our steel industry back and our aluminum industry back,” Trump said [13] in announcing the tariffs. No, not likely. No more than with coal.

Yes, American steel jobs are disappearing, including those of the company U.S. Steel. In 2016, U.S. Steel announced that it was laying off a quarter [14] of its salaried workers. And the fact is, America is simply consuming less steel. Production has remained steady since January of 2009, while imports spiked around January 2015 [15] and since then have dropped by about half. Let that sink in. The imports that Trump wants to slap with heavy duties have already been plummeting. Another explanation for declining steel jobs is the same for so many of the jobs that Trump has promised to save from “foreigners”—automation. Machines are  producing higher-quality steel at a lower price [16].

Meanwhile, aluminum produced from ore has dramatically decreased from about 75 percent in 1950 to a bit over 30 percent today [17]. That’s because post-consumer aluminum has gone from only about 8 percent in that time to about 30 percent today, while improvements within plants have allowed for the reusing of scrap to also drastically improve. Don’t blame Canada—blame recycling.

Beyond that, overall aluminum consumption last year was just slightly higher than in 2006 [18]. Double whammy. Now add in that pesky automation thing again. Triple whammy. That’s where the jobs are going.

So don’t expect much benefit to miners or smelter workers; do expect some to those who employ them. Steelmaker stocks soared [19] right after the tariff announcement; those of companies that use steel and aluminum such as The Big Three automakers dived [20]. Why? The auto sector accounted for 26 percent [21] of demand for steel in the United States in 2017, and aluminum use in U.S. vehicles has increased 400 percent since [22] 1975.

In fact, the direct jobs Trump wants to save account for 3 percent of the total aluminum industry jobs in the United States, says the Aluminum Association [23]. The other 97 percent (about 156,000) are in “downstream industries” that take the raw metal and make something new with it. So the oil and natural gas lobbies ripped the proposed duties [24] for clearly increasing the prices of pipes and machinery. Beverage companies like MillerCoors [25] were hardly raising a toast either [25], with the drink tank Beer Institute [26] noting that most U.S. brew is sold in cans.

Sheer speculation? Hardly. Those tariffs on solar panels are already destroying jobs of solar panel installers [27].

Steep tariffs almost inevitably lead to price hikes and lower sales, along with efforts to make up the difference with more automation or offshoring. Already the Mexican car industry is booming with everyone who’s anyone either building or planning to build vehicles there. Mexico is currently the fourth top exporter of vehicles [28] globally, but there’s plenty of room to grow. At best we can expect the tariffs to be a killer for anyone considering breaking ground for a U.S. vehicle factory; at worst we can see further migration of vehicle and vehicle parts construction south. Already given the myriad cost-saving advantages of vehicle-building in Mexico [29] it’s surprising that any vehicles are built in the U.S. at all.

Here’s where it gets really bad. Over 100 countries export steel alone [30] to the U.S. Now add in the aluminum exporters. The washing machine tariffs were already hitting a hornet’s nest with a stick, affecting over 10 different countries. Many were contemplating counter-actions. They will now implement them.

These actions could be indirect, such as switching to a different supplier. Or they could take the form of counter-duties. But do expect a tariff war. Canada’s foreign minister said any duties would be “absolutely unacceptable [30],” China is reportedly considering counter-sanctions, and the European Union was left seething, declaring it will soon announce counter-measures [31]. Not incidentally, all of these countries and entities were already hit by the earlier washing machine and solar panel tariffs.

Mexico “made it clear” that the tariffs will leave “no other option than to react,” reported the Financial Times [32]. As it happens, Mexico’s largest source of imported steel [33] is…the U.S., which accounts for about 35 percent. It would be poetic justice to have Mexico retaliate against Uncle Sam for for imposing aluminum tariffs by imposing its own steel tariffs.

Expect agricultural exports to get slammed, explaining why Senate Agriculture Committee Chairman Pat Roberts [34] railed against the proposed duties [35] in a rare show of GOP breaking ranks. “Every time you do this, you get a retaliation, and agriculture is the number one target,” he told The Hill. Agriculture Secretary Sony Perdue has also repeatedly warned [36] of the possibility of a trade war. Fact is, most of what the U.S. exports can hardly be considered unique. Brazil produces almost as much soybeans [37] as America does.

Yet on Friday Trump tweeted that [38] “trade wars are good, and easy to win.” No, nobody wins. We slam them even if it hurts us, they slam us even if it hurts them, and then of course we slam them back. Call it Mutual Assured Destruction on a lesser scale. Everyone loses except the few select industries that the tariffs are protecting. In fact, Trump is already specifying counter-retaliatory measures [39] even before the tariffs have gone into effect, much less the counter-tariffs.

As it now stands, the tariffs don’t appear nearly large enough [40] to upend the economy, although they will have an impact with counter-tariffs and counter-counter-tariffs. Where it stops, nobody knows.

Michael Fumento is an author, journalist, and attorney. 

32 Comments (Open | Close)

32 Comments To "Trump Unleashes the Dogs of a Trade War
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#1 Comment By Youknowho On March 4, 2018 @ 9:39 pm

By the way, earlier on, Mexico signed an agreement with Argentina to buy their produce from them – instead of the U.S.

Now they can buy steel from the Canadians.

Worse is coming.

And the idiot in charge says that “trade wars are easy to win”

Please, explain to me how Hillary could be worse…

At least he is not nuking North Korea, yet….

#2 Comment By SteveJ On March 4, 2018 @ 9:40 pm

How do you have a free and fair trade deal between a Constitutional Republic and a dictatorship?

There is no such thing.

#3 Comment By SteveJ On March 4, 2018 @ 9:51 pm

Incidentally, I’m a little skeptical of your parenthetical remark “(directly at least)” in paragraph 5, as well as your insinuation in paragraph 4 that the U.S. has engaged in substantive countermeasures to dumping.

#4 Comment By John Lane On March 4, 2018 @ 10:48 pm

Free trade is the greatest love, the most revered dogma, of the super rich, and has been for 200 years. Trump looks to be picking his greatest ever fight, it will make immigration seem like a minor side issue.

Will the super rich and their dupes win, or will common sense and the common good prevail?

Free trade benefits individuals at the cost of the nation. All the rest is smoke, this is the only important fact.

#5 Comment By LouisM On March 4, 2018 @ 11:58 pm

The only mistake Trump made was singling out a few commodities. Trump should have placed a 5% import tax on everything that comes into the US which is what most nations place on their imports from the US.
I don’t think this is a trade war although it might be. However I think IMPORT TAXES ARE LONG OVERDUE!
THE US HAS TO REBUILD ITS DOMESTIC MARKET AND THE DOMESTIC MANUFACTURERS, THE DOMESTIC SERVICE INDUSTRIES, THE DOMESTIC TRADES AND DOMESTIC AGRICULTURE. EVERYTHING SURVIVES OR DIES ON WHETHER IT CAN BE GLOBAL…AND ITS TIME TO BIFURCATE OUR ECONOMY WHERE OUR DOMESTIC ECONOMY HAS AN EQUAL ABILITY TO SURVIVE AS DOES OUR GLOBAL ECONOMY.

#6 Comment By I Don’t Matter On March 5, 2018 @ 7:13 am

SteveJ:
“How do you have […]?”
– Directly
“Incidentally, I am a little skeptical […]”
– Your skepticism is unwarranted.
Now that your questions and doubts are addressed, would you like to comment upon the substance of Mr. Fumento’s article?

#7 Comment By Kent On March 5, 2018 @ 9:01 am

Solar panels and washing machines.

Embarrassing stuff.

#8 Comment By David Nash On March 5, 2018 @ 9:19 am

While I despise Trump’s actions, not to mention his unhinged tweety-birding, pardon if my inherent skepticism questions your thesis. There will be economic upsets from this, as any tinkering with an international economy will have,

But…

World War IV! Really?

They hyperbole is strong with this one.

#9 Comment By Other Kent On March 5, 2018 @ 9:29 am

SteveJ – Canada is a dictatorship? You learn something new everyday.

#10 Comment By Heymrguda On March 5, 2018 @ 9:49 am

Done any reading about the huge trade deficits we’ve racked up recently with the rest of the world mr. Fumento? Your article doesn’t address them.
By all means we should continue full speed ahead with the status quo, it’s worked so well for us.

#11 Comment By SteveJ On March 5, 2018 @ 11:06 am

“How do you have […]?”
– Directly

Really? You have a direct free and fair trade agreement with a dictatorship when you are a Constitutional Republic?

That’s absurd.

You’re second part is a little cryptic, and I’m willing to keep an open mind on it.

Mr. Fumento seems to start out with the specific item of steel, and then branch out from there.

I’m not here to “win” anything. Just voice some sincere concerns. I don’t appreciate the tone.

And this other guy Mr. Kent ought to know better than to claim I said Canada was a dictatorship.

#12 Comment By The Dean On March 5, 2018 @ 11:39 am

When this President took office he said it was going to be America first. In his speeches he would say that while other countries are making shrewd business deals we were being “nice” as if this were some grade school exercise.

This man instinctively knows that the real power in the world lies with the United States of America, not in our neighbor to the north. Our GDP is about 1000% greater than Canada’s. Our military keeps peace in the world and has been protecting allies since World War Two who in turn use their own tax money not for their defense but for their own social issues and infrastructure.

Is this jingoistic or do we have a man who understands that the world is ruled by a Machiavellian realpolitik and not nice guys. We can and will make our own steel, aluminum and whatever else is in OUR interests, not the worlds. The shot across the bow has been fired. I salute you Mr. Trump.

#13 Comment By Paul Clayton On March 5, 2018 @ 12:12 pm

Could’ve been written by the American Trade Association or some such. Bottom line, if we have no industrial base, we are not a first world country. We have a huge trade imbalance with all our trading so-called partners. Previous admins have given away the store. So after tens of years of trade imbalances, Trump is demanding reciprocity and the world (that’s been getting over on American workers) is screaming ‘trade war!’ Well, too bad. Trump sees the status quo as a paper barrier to be smashed. That’s why we love him. Yeah, the bankers, stock hoarders, greed-bag capitalist financiers, traders, and assorted money grubbers will hate this, but what remains of the American worker and middle class will love this. So what if we have to pay a little more for our cars? How many average Americans can afford a car (20K at low end) today anyway? This… trade-war, skyrocketing prices, world will end hysteria has been used successfully to convince Americans that we cannot control our border or the price of lettuce will skyrocket. So, let it skyrocket, damn it! Then some American will figure out a way to bring the price down, legally, wo importing a serf work force. I’m so sick of the silk-suited princes of American (International) Capitalism selling America’s seed corn and land and knowledge base… for their and their investors’ short term gain. You go, Trump! Tear it down!… Yes, tear it down, and we’ll build it better.

#14 Comment By George Orwell On March 5, 2018 @ 12:29 pm

An interesting interpretation Dean. From my perspective, it looks like the US is too frightened by China to slap some real tariffs on them. So frightened that they would rather bully limp wristed allies like Canada instead of picking a fight with someone who could clobber them.

#15 Comment By Youknowho On March 5, 2018 @ 12:52 pm

@Paul Clayton

By raising, via tariffs, the price of the raw materials (aluminum and steel), Trump has damaged the industrial base.

There are industries that deserve protection. But those are all new technologies. Instead of protection, they get their supplies disminished. Just ask the solar panel installers who are losing their jobs. THAT is a new technology. THAT deserves protection.

In the name of protecting 20th century technology, Trump is doing his best to destroy 21st century technology in this country.

What’s so difficult to understand?

#16 Comment By Mark Bruijn On March 5, 2018 @ 1:22 pm

Those Americans like Paul Clayton and John Lane here in the reply section should realize following in my view: The American Consumer has spurred economic growth and thus been improving living standards worldwide for decades now by buying imported stuff from all over the world in unprecedented quantities. In exchange the world has been buying US treasury bonds in unprecedented quantities, thus providing the US with the money to live above it’s means for decades while there was no danger to the dollar as the world’s reserve currency. This has now resulted in a US national debt of 20,8 trillion (77,000 dollar per American citizen).
This is a perverted situation in my view. but…if the US closes it’s borders for the world’s products, the world will stop buying US treasury bonds and drop those already in possession in the market. The result will be the end of the dollar as the world’s reserve currency, the end of the value of the dollar and a US that will be technically as good as broke while being in a till now unseen recession.
It will wreak havoc worldwide, it will end the US being the or even a global superpower.

My question to you: Is it still worth it to you if that happens?

#17 Comment By balconesfault On March 5, 2018 @ 1:29 pm

One more step by Trump along the pathway that will lead to the dollar losing its status as the global currency.

Then we will pay for our hubris of the last 40 years (the Clinton deficit reduction years excluded).

#18 Comment By Robert On March 5, 2018 @ 2:27 pm

Trump’s tariff policy show he cares about American workers and businesses. First, steel and aluminum are national security necessities. You don’t start looking for steel to import when you are building naval vessels. You need the steel industry capacity at home to deal with any emergency. Second, free trade has not been of benefit to any of the 3 members of NAFTA. Look at Mexico: the standard of living is still stagnant, there is a sizeable population living in abject poverty – enough to risk death by trying to enter the US illegally, corruption and drug cartels are rampant. In Canada, NAFTA caused a loss of 1 million manufacturing jobs – and they are still disappearing. Last year, when GM announced the loss of 600 jobs (to Mexico) – this was just accepted as being normal and acceptable – the political elite and the multi-national corporations backing them don’t give a damn about the families and communities destroyed as a result of corporate greed. And what about the smaller US and Canadian companies which care about their workers. They are being discriminated against by the multi-nationals and free trade rules.

#19 Comment By DJ Tanyan On March 5, 2018 @ 2:54 pm

Hmmm…
Conservatives (and other savvy businessmen and women) advocated for breaking the back of American labor by sending jobs overseas decades ago…
…now they decry the diminution of American manufacturing. (if we’d begun in the 80’s making long term commitments on national infrastructure replacement, for example, we could have ensured that everyone including workers, government, taxpayers, and private business working together might have crafted some pretty cool solutions, but no….
It would have been so much easier in the reagan era to “make a deal” to keep the amazing American domestic production engine humming but no…
Outsourced parts, outsourced manufacturing (i.e. stolen R&D), outsourced military services, outsourced tech support and outsourced legislation (ALEC)
It took 40 years for you to discover your ‘victory’ is the very definition of pyrrhic.
A country without heavy industry is a country naked to the world (my definition).
A nation that throws away its heavy industry because it refuses to recognize the humanity of its workers regardless of status places itself in peril needlessly. As my grandmother’s grandmother used to say: If there’s hell below….we’re all gonna go.

#20 Comment By Paul Clayton On March 5, 2018 @ 3:28 pm

@ YouKnowWho: “There are industries that deserve protection. But those are all new technologies. Instead of protection, they get their supplies disminished. Just ask the solar panel installers who are losing their jobs.” Better the ‘installers’ lose their jobs than the ‘manufacturers’ (of solar panels) lose their businesses and expertise making solar panels. Using your logic, one could say, DIS-allowing the Japanese (and the Koreans and Chinese) to wipe out our auto manufacturing base would result in the loss of jobs to car salesmen. Well, duh!!!!!!

#21 Comment By Sean On March 5, 2018 @ 3:32 pm

America exports more steel to Canada than it imports. Countervailing duties will do nicely.

Canada signed on to TPP and has a newly minted trade agreement with Europe. It’s already pivoting.

#22 Comment By I Don’t Matter On March 5, 2018 @ 4:51 pm

SteveJ: Mr Fumento made very specific arguments against the tariffs as proposed by Trump. He also made very specific arguments against trade wars. Responding with platitudes and ideological stances adds zero value to the discussion.
Note: nobody so fas has been able to factually refute anything Mr Fumento has stated. A lot of ideological posturing empty sloganeering.
Here’s some more: the rich will be fine no matter how Trump wrecks this. It’s the working stiffs in manufacturing who are going to be losing their jobs as our industry is made less competitive because its key inputs are artificially mad costlier. For a perfect example, look at sugar: the US has punitive sugar tarifs to protect Florida Crystals. This keeps driving candy makers across the border to Canada and Mexico.
By the way: the cost of steel makes a larger portion of a Ford Focus price, than that of a Tesla. As I said, the rich will be ok, thank you.

#23 Comment By SteveJ On March 5, 2018 @ 5:37 pm

Mr. I Don’t Matter:

I made a specific statement. That there is no free and fair trade agreement with a dictatorship and a Constitutional Republic.

Do you dispute this?

#24 Comment By John Lane On March 5, 2018 @ 6:02 pm

Replying to Mark Bruijn.

I am not a USA citizen, I am an Aussie.

Yes, I agree with your analysis. However you seem unaware of the obvious fact that the longer the deficits continue, the greater the tension grows, the worse will be the crisis when the re-set inevitably happens. Think of WW1 for example.

Free trade means that the rich get paid in their domestic currency, and live in luxury, while the nation as a whole develops a dangerous surplus or deficit with other nations. Free trade is a policy favouring individuals at the cost of the community. If the USA ever tries to repay its debt to China, it will need to sell loads of stuff to other countries, ideally China itself. This in turn will require subsidies for domestic industry, so that dumping can occur, an act of economic warfare, and this leads to military warfare. The only sensible policy is balanced trade, but our governments don’t work for us, they have long been captured by the rich. (The left meanwhile want to throw the baby out with the bath water, so they have no answers at all.)

#25 Comment By James Coburn On March 5, 2018 @ 6:21 pm

This is pretty much what was said when the tax-cut was being talked about. As it turned out, its been a good thing.

Why don’t you wait to see what happens before you cry about it. Let the man govern, we he screws up, then you can hammer him as I’m sure you will.

And just so you know, I think you’re wrong. I also think President Trump didn’t become so rich, because he’s stupid!

This man(Trump) has done more (and has tried to do) than just about any other President we’ve ever had.

The problem: Most people are buried so far down that hole in the ground, they can’t see S**T!

Actually, there are some that might be able to see S**T, if you know what I mean! Lmbo

#26 Comment By SteveJ On March 5, 2018 @ 6:29 pm

“Here’s some more: the rich will be fine no matter how Trump wrecks this.”

Ha! On that we agree.

#27 Comment By Balconesfault On March 5, 2018 @ 8:39 pm

How about a tariff on trucker caps manufactured abroad?

Particularly those that say MAGA?

#28 Comment By tzx4 On March 5, 2018 @ 8:46 pm

I am fully prepared to get flamed for this comment. Here goes.
I am not saying I am certain that it is true, however it is imaginable simply by observing the course of actoins taken by Trump, that he is indeed a stooge for Putin. He is alienating us from many important decades long best allies. Conspiracy or not, Putin has to be gleeful at Trump’s performance in office.

#29 Comment By working man On March 6, 2018 @ 3:08 am

With the trade deficit in the United States being what it is and the hollowed out United States industrial base something had to be done and Trump is doing it. Bravo. And in case you don’t know it we are, and have been in a trade war–one we are losing badly. There should be tariffs on all imports. When talking about trade academic analysis is not what is needed, we look at the results,the Rust belt, and we know that we are losing. Besides trade occurs when country A makes a product more efficiently than country B, while country B makes another product more efficiently than country A so they trade. This is comparative advantage. Trade is not when one moves its production to the other country because of cheap labor. That is what continues to happen. This is not trade; it is labor arbitrage.Let those countries who produce products in other countries sell those products to the people to whom they pay twenty five censt a day. See how long those companies stay in business.

#30 Comment By Youknowho On March 6, 2018 @ 8:32 am

@Paul Clayton

When it comes to solar panels, the situation reminds me of what Arturo Jauretche – the great prophet of Argentine industrialization, based on protectionism – said about those who criticized an industrialism based on creating steel products and buying steel abroad. His argument was that if you built the facilities to make your own steel, you would find that there was little market for it – but if you built an industrial base, you would have demand for steel, so you could have a steel industry.

With solar panels, we are still at the stage of creating a market. We are not destroying a solar panel industry – it did not exist until people started wanting them. By cutting off the supply of solar panels from abroad, we are destroying the market for them.

#31 Comment By Chris Ray On March 6, 2018 @ 8:42 am

Globalists oppose the tariffs, Patriots support them.Its really that simple.

#32 Comment By Ryan W On March 6, 2018 @ 3:28 pm

The trouble that makes this issue hard to address adequately is that the problems Trump identifies are really big and important problems, but the way he tries to deal with them is ham-handed and often counter-productive, as well as unfair. But it’s hard to make that point, because a lot of the opposition to Trump is of the old, “Everything was fine before. The only communities dying were the ones that deserved to die. Neoliberal globalization is always good, and if you disagree you’re a bigot,” type. The people defending the Clinton and Bush era settlement against all comers make it harder for more reasonable critics of Trump’s approach to be heard.