The new steel and aluminum tariffs will apply to all countries except Canada and Mexico. What does this all mean for Americans?

Today, President Trump signed an Executive Order to implement tariffs on imported steel and aluminum.  “Aluminum and steel are the backbones of our nation,” said Trump adding: Other previous great presidents protected our country from outside nations. We’re going to protect the American worker.”

The official rationale given by the administration for this measure is a national security argument, but as a hat tip to his blue-collar voting base in the Midwest, Trump invited steelworkers to the Oval Office for this signing.  

At the background briefing earlier today, the White House official explained the President’s national security rationale.  He emphasized that the US military relies heavily on steel and aluminum for weaponry and that it would be a great risk for our military to need to rely on imports.  He particularly emphasized how the US has only one remaining manufacturer of military grade aluminum.

This EO will implement a 20% tariff on steel imports, and 10% on aluminum.  When Trump first discussed this a week ago, several concerns were raised.  The usual concern from free trade advocates was predictable and unlikely to have any effect on Trump’s policy.  However, some have raised concerns over particular countries.

Trump will exempt Canada and Mexico from tariffs

Overall, the US has a trade surplus with Canada, yet Canada does have a thriving steel industry and exports to the US.  A tariff on Canadian steel would likely trigger retaliation, and in this case, the US has far more to lose than with countries with whom the US has a massive trade deficit.  The situation is similar with Mexico, though Mexico has a small trade surplus with the US that amounts to less than 20%, according to official figures from the US Census Bureau.  Furthermore, NAFTA renegotiations are still underway, and this could hinder those negotiations.

Therefore, President Trump will exempt Canada and Mexico from these tariffs for the time being.  

During a conference call earlier today, the question raised was if it was intended to give the US more favorable trade terms during the NAFTA renegotiations.   The White House official responded by re-emphasizing national security concerns and stated that those concerns would be addressed with Canada and Mexico.

China is one of the main targets, and the US trade deficit with China has been at a 4 to 1 ratio for at least a decade.  In the month of January 2018, that ratio was very close to 5 to 1.  During Obama’s first year in office, a tariff was implemented on tires imported from China at 35%.  This, however, specifically targeted China. These new steel and aluminum tariffs will apply to all countries except Canada and Mexico.  

A trade war with Europe?

Last week, Europe threatened trade retaliation.  Trump responded by stating that if Europe implements additional tariffs, the US would follow up with tariffs on automobiles from the EU.

Following the Brexit vote, the UK is in the process of leaving the EU.  But the UK was not exempted from this tariff. Trump has been continuously negotiating for a trade deal between the US and UK following the full implementation of Brexit.  It is almost certain that the UK would request the exemption from this tariff.  

At Home

At home, these tariffs are likely to help Trump with his newfound blue-collar base in the Midwest.  Tariffs are probably the number one reason why just enough traditionally Democratic voters went for Trump in 2016, turning those “rust belt” states red.

The Big 3 – Michigan, Wisconsin, and Pennsylvania – had been blue since ‘92 (‘88 for Wisconsin).  They went for Clinton in 1992 because he positioned himself as a “moderate” on trade, promising to balance more trade with basic protections for workers.  As the trade deficit has grown, blue-collar workers have felt neglected, and Trump’s trade agenda, combined with his appeals to “forgotten Americans”, tipped the scales for Republicans in these states.

Whether it helps Republicans in the upcoming midterms is less clear.  Many Congressional Republicans urged Trump not to sign these tariffs, including Wisconsinite Paul Ryan.  This may also increase tensions within the Republican Party between the Trumpian populists and the “old guard” Republicans, such as Senate Majority Leader Mitch McConnell.  But will it be enough for these “old guard” Republicans to break with Trump, and risk creating a power vacuum for Democratic challengers?

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