Trump Threatens Global Trade War

President Trump has announced that his government would hike tariffs on steel imports to 25% and on aluminum imports to 10%. This has caused international outrage as steel producers from Canada, South Korea and Taiwan to the European Union pulled up their socks in preparation for an ugly trade war, several US industries feared upticks in their products and a tmble in the stock market.

The official reason was the hike is that both metals are essential for ‘national security’, that is, for building armaments. The real intention appears to be that curbing steel imports will revive the flagging US steel industry and rejuvenate jobs. Trump had won in some of the key swing states like Pennsylvania, Ohio and others in the mid-West in 2016, attracting blue collar segments on promises of reviving the coal and steel industries. It is also seen as a slap to China which is currently going through a steel overproduction glut.

The announcement has drawn sharp reaction from the European Union, the second largest producer of steel after China. They are afraid that high tariffs in US would mean a crisis of overproduction – and subsequent drawing down – in EU all of which will cause more unemployment, and of course falling profits.

Following swiftly on the heels of Trump’s salvo, European Commission President Jean-Claude Juncker made a belligerent counter statement.

“The Commission will bring forward in the next few days a proposal for World Trade Organization-compatible countermeasures against the U.S. to rebalance the situation,” he said.

“The EU has been a close security ally of the U.S. for decades. We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk. I had the occasion to say that the EU would react adequately and that’s what we will do.”

In anticipation of Washington’s announcement, France, Germany, Italy and Spain met on Tuesday to agree to impose safeguard measures if Trump imposed tariffs on Asian steel, reports said.

What is causing most heartburn globally is that Trump has invoked a little used law that allows the President to curb imports that threaten national security. This can open a Pandora’s Box because any and every country can do the same kind of thing, destroying the fragile international trade system and its protector the WTO.

This move would end a decades-old ceasefire on using a loophole in global trading rules intended to be employed only in times of war or other national emergencies. EU Trade Commissioner Cecilia Malmstrom was quoted by Financial Times as saying that “it also risked undermining the World Trade Organization and provoking other countries to do the same”.

According to industry sources, Canada followed by Brazil and South Korea are the three biggest sources of steel imports to US. US imports four times as much steel than it exports. China is the eleventh largest steel exporter to US.

Can US steel industry be revived by this kind of protectionism? Opionions are divided. A recent Commerce Department study had suggested that reducing imports may increase jobs in the US steel industry. But long time trends suggests that the picture is more complex. New technologies and the higher use of scrap recycling have led to a decline of US steel jobs from over 650,000 50 years ago to just 218,000 in 1998 and further down to 142,000 in 2017, according to the US Bureau of Labour Statistics.

So Trump may well wreck the world’s trade equilibrium and yet end up with no succor for unemployed steel workers in US.