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Mar 2, 2018 | 00:02 GMT

6 mins read

Trump's Trade Challenges, Revisited

U.S. President Donald Trump speaks during a March 1, 2018, meeting at the White House with steel and aluminum industry leaders.
(MANDEL NGAN/AFP/Getty Images)
Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.
Highlights
  • President Donald Trump's announcement that large tariffs are coming next week on steel and aluminum imports is just the start of a bigger trade push, ostensibly targeting China.
  • Over the next week, other countries and certain U.S. steel and aluminum consumers will lobby for country- and product-specific exemptions to the tariffs, but Trump is likely to minimize the number of exceptions he gives.
  • In launching the tariffs under the guise of national security, the United States will face international backlash, both in retaliatory trade measures, but also at the World Trade Organization.

A chaotic series of events unfolded at the White House after news broke late on Feb. 28 that President Donald Trump would announce his decision on import tariffs on steel and aluminum the next day. But reportedly, many senior administration officials had been caught off guard by the news of a planned announcement, and no decision on tariffs had been made. And then during a March 1 meeting with executives from the steel and aluminum industries, Trump said he will formally announce a 25 percent tariff on steel imports and a 10 percent tariff on aluminum next week. The details clearly remain unresolved as legal teams continue to pore over the final text, but action also clearly looms.

Nearly two weeks ago when the U.S. Commerce Department released its report on whether steel and aluminum imports threaten to impair U.S. national security, Stratfor wrote a guidance outlining what we would be watching for as Trump's final decision neared. With the president's decision now apparently on its way next week, we offer an updated guidance addressing the critical questions surrounding the issue.

The Big Picture

In Stratfor's 2018 Annual Forecast, we said that the United States would face a decision in the next few months over whether to restrict imports of steel and aluminum after investigations into the effect of those imports on U.S. national security concluded. With reports detailing the results of those inquiries sitting on President Donald Trump's desk, we are now seeing concrete steps being taken toward significant action.

Divisions Within the West Wing

The White House remains deeply divided on trade issues and the degree of protectionism to pursue, but now that it looks as if large tariffs are coming, it is clear — or at least it seems to be clear for now — that the administration's protectionist faction is making headway. The steel and aluminum tariffs Trump mentioned March 1 are both slightly higher than the tariff levels the U.S. Commerce Department recommended last month. What remains to be seen is whether the administration's globalist wing and the national security establishment can blunt Trump's decision by pushing for exemptions for U.S. allies or for certain products.

There are other signs pointing to the elevation of the protectionist wing in the White House. Rumors emerged on Feb. 23 that Peter Navarro, a trade hawk, was being promoted to special adviser to the president, giving him a direct line to Trump for the first time since he fell out of favor in September. The strength of the protectionist wing also comes ahead of major decisions on the Section 301 investigation into Chinese technology-transfer rights, an investigation that must be completed by mid-August. Navarro, as well as U.S. Trade Representative Robert Lighthizer, are both vocal anti-China trade hawks. If their position is gaining momentum, then an even more significant action against China may be pending than the already large action that is anticipated.

It's also clear that most U.S. industries are not happy with Trump's steel and aluminum tariff plans. While steel and aluminum producers and their workers' unions support tariffs, the vast majority of U.S. industries are steel and aluminum consumers and soon will have to face higher prices for some of their critical materials. This distinction between consumer and producer was apparent in Wall Street's reaction to Trump's remarks. The stock of U.S. Steel, for example, rose more than 6 percent in just a few hours after Trump spoke, while Ford Motor Co. and Boeing Co., major consumers of steel and aluminum, saw their stocks fall by more than 3 percent.

Legal Loopholes

Trump's team is poring over the legality of a blanket tariff on steel and aluminum imports, seeking to minimize any legal challenges that could emerge. Not all of the legal challenges can be addressed, of course. No matter what the United States does, cases objecting to the moves will be filed at the World Trade Organization (WTO) and elsewhere. In general, a blanket tariff is the simplest and most efficient way to institute protectionism. Establishing a quota system or singling out specific countries for tariffs would bring additional challenges, since the United States, through the WTO's most-favored nation principle, has promised to treat all WTO members the same when it comes to imports and tariffs.

Anger Abroad

Major U.S. steel and aluminum trading partners have lobbied for exemptions and lesser action. Brazil and Mexico have sent delegations to the United States, with Brazil in particular considering retaliatory tariffs against U.S. coal imports — a threat that remains on the table. The European Union, Canada and other major exporters have issued similar threats: retaliatory action and WTO challenges.

U.S. Steel Imports
Trump's planned tariffs are also ostensibly directed against China implicitly, though Chinese steel has been largely priced out of the U.S. market because of heavy tariffs already in place through anti-dumping and countervailing duty investigations. (Many of the tariffs in place dwarf the 25 percent figure Trump mentioned March 1.) Still, China will be affected. The foreign supplies kept out of the U.S. steel and aluminum market by tariffs will head elsewhere, where they will eat into the market share of Chinese steel in particular and could result in some consuming countries instituting their own safeguards against a glut of steel and aluminum being diverted from the Chinese markets.

Trump's remarks coincided with a five-day visit to the United States by Liu He, China's top economic policymaker, who is in Washington to try to defuse U.S. trade pressure. Beijing has been trying to work various backchannels to the White House to gauge U.S. options and to revive their suspended economic dialogue to see where its concessions could fit. China has been holding out on promises to increase U.S. imports and expand market access to U.S. investors in the agricultural, energy and financial industries, and also has signaled it could ease up on forced tech transfers on foreign companies. But Beijing will equally respond to U.S. trade policies through proportional tit-for-tat measures. Already, China has launched one-year investigations on U.S. sorghum and has also weighed its options on other key U.S. agricultural exports, such as soybeans and corn. U.S. chemical products, aviation and firms operating inside China could also face retaliatory pressures.

 

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