In one of the biggest moves in his “America First” economic policy, President Donald Trump announced a tariffs update on Thursday, sending the international press into a tailspin. The new tariffs will include a 25% tariff on steel and 10% tariff on aluminium.
President Trump’s announcement comes after the US Commerce Department reported in February that relying on foreign imports of steel and aluminium serves as a threat to national security. Additionally, Commerce Secretary Wilbur Ross stated the import of these materials is driving down prices in the US and shuttering American factories. The Commerce Department recommended the President act quickly under a seldom used trade provision that allows the president to impose tariffs if they are in the interest of national security.
While critics have accused the Commerce Department of conflating economic and national security, proponents of the plan point out that relying on imported steel and aluminium in times of conflict could put the US in a precarious situation.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Experts have been weighing in on the tariffs update all day. Some predict that the tariffs could start a trade war with the US’ largest trading partners, especially China, while leading to possible legal repercussions through the World Trade Organization.
Although the steel and aluminium imports may be hurting US production of both materials, plenty of businesses in the US rely on the low cost of these metals. Businesses and farmers worry about what these new tariffs could do to their bottom line. Economists are already predicting higher prices and lower sales in the automobile industry, resulting in a major round of layoffs.
As steel and aluminium are diverted from the US market, the EU has expressed concern that their market will now be flooded with the metal instead. The EU announced they will be implementing “safeguards” to prevent this from happening. The largest economic union in the world has said they will also be filing a complaint with the World Trade Organization.
Alexandra Winterstein, a spokesperson for the European Commission, told the press they will be discussing the situation and options for countermeasures on Wednesday. “We are going to do this according to the rule book. But we are going to make sure that we are effective and also firm.”
Germany, Europe’s largest economy, was likewise distressed over the news. A spokesperson for German Chancellor, Angela Merkel, did not mince words, telling reporters, “Such tariffs will severely impact our steel and aluminum industry.” Just the tariffs announcement caused the German DAX index to take a nosedive, dropping by 2.3% so far.
According to Moody’s Investors Service, their analysis indicates that Bahrain and Canada will see the biggest loses from the new tariffs. Canadian media outlets are predicting disaster for America’s northern neighbor, considering Canada is the largest provider of steel and aluminium to the US. The Prime Minister of Norway, Erna Solberg, questioned the justification of “national security” when the imports are coming from US allies.
Critics of Donald Trump from his Own Party
President Trump has never seen eye to eye with the classical liberal, or Libertarian, side of the Republican party. While President Trump advocates for trade protectionism and economic nationalism, classical liberals tend to be more cosmopolitan and consistently advocate for free trade. To classical liberals, closing factories is just an indication of the changing times, and even of progress.
Other Republican critics insist that the President’s tariffs will embroil the US in a trade war that could have disastrous consequences for American businesses.
A Republican leader, Senator Roy Blunt (R-MO) said in response:
I continue to be concerned about what other countries do in response to that. In our state, we make steel and aluminum, but we continue to buy a lot more than we make. Things like sheet aluminum that you use to make boats with, we make a lot of boats, it’s not available in the United States.
Senator Ben Sasse (R-NE), the first Republican senator to announce that he would not vote for Donald Trump in the 2016 election, issued a statement reading:
Let’s be clear: The President [Donald Trump] is proposing a massive tax increase on American families. Protectionism is weak, not strong. You’d expect a policy this bad from a leftist administration, not a supposedly Republican one.
A spokesperson for Speaker of the House Paul Ryan said Thursday that the Speaker hopes the president will reconsider the tariffs, “The speaker is hoping the president will consider the unintended consequences of this idea and look at other approaches before moving forward.”
Donald Trump Tweets
President Trump receives plenty of criticism for his tweeting, but he insists Twitter is how he is able to communicate directly with the American people. After announcing the tariffs yesterday, President Trump took to Twitter to explain his decision in a series of early morning tweets.
The President enraged the world by tweeting out early this morning that trade wars can actually have a positive outcome:
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
Later in the day President Trump took advantage of the new 280 character limit to explain his thinking on tariffs in further detail:
When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!