President Trump is finally getting his trade war.
Back in March, Trump announced tariffs on all steel and aluminum imports. But just as quickly, he granted exemptions to Canada, Mexico, and the European Union, among others. The hope was some sort of arrangement could be reached in the interim. But it wasn't to be. On Thursday, Trump slapped a 25 percent tariff on steel imports from Canada, Mexico, and the European Union, and a 10 percent tariff on their aluminum imports.
This is undoubtedly a dumb move. But is it a disastrously dumb move?
Let's work through the problem, starting with Canada and Mexico. In their case, Trump's tariffs are a pretty obvious effort to push our two neighbors into seriously renegotiating the North American Free Trade Agreement (NAFTA). The problem is Trump doesn't actually have any serious leverage here. He can't pull the U.S. out of NAFTA all by himself. He needs Congress to cooperate, and that cooperation will not be forthcoming. Neither Mexico nor Canada wants out of NAFTA, and Trump can't force their hand. Instead, they'll just respond with some retaliatory tariffs (as they already have) and call it a day.
Plenty of domestic American businesses rely on aluminum and steel imports — particularly from Canadian supply chains — and don't like it when their prices rise. As such, it will be hard for Trump to get any real political traction out of this.
The EU's trade entanglements with the U.S. are a good deal more complex. Trump's target here is America's $150 billion trade deficit with the EU, which he's called "unacceptable." And admittedly, the EU is not an innocent player here: It puts a 10 percent tariff on American cars, for instance, while Europe's own car exports to us face a duty of only 2.5 percent.
But the root cause of the trade deficit with the EU is that the euro trades for less value than the U.S. dollar. If Trump explicitly offered negotiations over eurozone currency policy as a way to settle the aluminum and steel tariffs, that would be one thing. But he's not. On top of that, a big part of why the euro is undervalued is that eurozone financial authorities keep imposing crippling austerity on countries like Greece and Italy, sabotaging the continent's economic recovery.
As for the steel and aluminum exports specifically, China is the real problem. Their massive dumping of steel exports is driving prices down all over the globe, which is why EU exports are undercutting American producers. In other words, America and the EU actually have a shared grievance here. But by lashing out at the Europeans with direct tariffs on them, Trump is making an alliance less likely.
Nor is anyone buying the Trump administration's argument that the steel and aluminum tariffs are necessary for national security. “We have not seen any analysis that shows these exports pose a problem to national security," said David O'Sullivan, the EU's ambassador in Washington. The Canadian foreign minister dismissed the argument as "frankly absurd."
Rather then intimidating anyone, Trump is mainly succeeding in insulting our allies.
The EU is responding to Trump's posturing with some Trump-like posturing of its own. The U.S. government wants countries to adopt voluntary quotas on steel and aluminum exports in exchange for scrapping the tariffs. And countries like South Korea, Australia, Brazil, and Argentina have already struck that deal. But EU leaders are holding their ground: "It pays to stand up to this administration," Edward Alden, senior fellow at the Council on Foreign Relations, explained to The Washington Post. "I don't see Europe being willing to make big concessions to get trade peace."
The most likely result of Trump's tariffs will be little beyond a retaliatory set of EU tariffs on American exports (Kentucky bourbon, Levi's jeans, and Harley-Davidson motorcycles, among other things), plus a likely complaint to the World Trade Organization. But those imports from the EU also only total around $3 billion. Again, an unfortunate and needless trade skirmish, but also a small one in the grand scheme of things.
The danger lies in what Trump may do next.
Unable to bully the EU, Canada, or Mexico into submission, Trump may well retaliate to their retaliation. The administration is already discussing a 25 percent tariff an all automobiles imported from these countries. It would do it using the same national security reasoning as the steel and aluminum tariffs — which would be an even bigger stretch than the previous gambit. In fact, Trump is reportedly contemplating a total ban on all imports of German luxury cars.
This needless trade war could have major effects on Iran policy, too. Now that Trump has pulled America out of the nuclear deal, his next step will be to reimpose economic sanctions on Tehran. But for those sanctions to bite, they must also be imposed on any allies that do business with Iran. And since European Union nations didn't want to scuttle the Iran deal and are trying to save it, this could become a big problem. America exported $283 billion to the EU last year, and imported almost $435 billion. What happens when Europe keeps trading with Iran? If Trump sticks to his guns on Iran sanctions, it would be an escalation vastly worse than these steel tariffs, or even the threatened automobile tariffs.
As much as everyone (other than Trump, at least) wants to avoid a trade war, they often start much the same way normal wars start: not because people think hostilities would actually be a good idea, but just because no one wants to swallow their pride and back down from a fight. But please, Mr. President: Swallow your pride. Back down. These tariffs are stupid — and dangerous.
