Stratfor's 2018 Annual Forecast strongly emphasized that the U.S. presidential administration would pursue increasingly unilateral trade measures to further U.S. President Donald Trump's aggressive trade agenda. As Trump and his administration push forward with a plan to levy tariffs on steel and aluminum, that forecast has proved accurate.
The steel and aluminum tariffs promised by U.S. President Donald Trump aren't in place, but reactions to them are already rolling out. On March 6, news broke that Gary Cohn, director of the National Economic Council, would be resigning for a variety of reasons, with the proposed tariffs among them. On top of that, European Trade Commissioner Cecilia Malmstrom publicly outlined a three-pronged strategy on how the European Union would respond to the U.S. tariffs on March 7. The two responses add to the pile of negative reactions to Trump's proposed 25 percent tariff on steel and 10 percent tariff on aluminum.
Malmstrom said that the bloc would challenge the tariffs in the World Trade Organization (WTO), place restrictions on imports to guard against steel diverted from the United States and impose its own tariffs on certain U.S. goods. Clad in a black leather biker jacket, Malmstrom confirmed rumors that the European Union would target the United States with tariffs on motorcycles and bourbon, as well as on such agricultural products as cranberries and peanut butter. Though the leaked list of goods that the European Union could strike back against includes hundreds of items worth about $3.5 billion in trade, the WTO challenge could ultimately have a greater effect.
The European Union has had harsh words for the U.S. justification for levying the tariffs. According to Malmstrom, trade with U.S. allies in NATO and the European Union should not be considered a threat to U.S. national security. The European Union is effectively throwing out the U.S. argument that the tariffs protect U.S. national security and is instead treating them as a traditional safeguard, or a move to restrict imports to protect industries. The European Union is using this as a justification to move fast and early with its response, but doing so could also make the EU response in violation of WTO regulations.
The U.S. administration has argued that its trade actions are in the interest of national security, but opponents have claimed that the action is nothing but good old-fashioned protectionism. The United States could continue to argue before the WTO that trade measures like the proposed tariffs are in place to protect national security, but that move has the potential to open the door to a multitude of such arguments in WTO disputes. The United States could attempt to sidestep this issue by exempting its allies from metal tariffs, but voices from within the White House have already argued against this.
One Trump trade adviser, Peter Navarro, has publicly argued that exempting any U.S. allies would lead to a slippery slope in which more and more countries plead for leniency, ultimately forcing Trump to increase the tariffs on nonexempt countries. Navarro has reportedly used his position in the White House to push for a protectionist trade agenda, but Cohn's replacement could stand in his way by arguing the opposite. According to a recent report, Larry Ludlow, Kevin Warsh and Shahira Knight are in the running for Cohn's position. Like Cohn, all three would likely attempt to persuade Trump to move away from fiercely protectionist measures.
The details of the tariffs, as well as the responses to them, are not yet set in stone. The White House has announced that the tariffs order will be signed March 7 and that caveats will be included outlining how companies and countries can gain exemptions. Mexico and Canada, it has been announced, could be exempt from potential tariffs on the basis of national security. Trump's decision is ultimately impossible to predict, but an unhappy response from the European Union — as well as Trump's own party and administration — can be expected if he chooses to pursue the tariffs he has promised on aluminum and steel.