Ben Roback is Head of Trade and International Policy at Cicero Group and a member of the US Embassy’s Young Leader’s UK programme.
Donald Trump started the new month in predictably unpredictable fashion. On March 1st, he announced – amidst some confusion – tariffs of 25 per cent on imported steel and ten per cent on imported aluminium.
The President used an executive quirk based on national security to implement the tariffs. Section 232 of the Trade Expansion Act allows him to circumvent Congress, granting the executive the ability to impose tariffs on any country if it is deemed to pose a risk to national security.
Presidential protection for America’s manufacturing rust belt could start the trade war Trump has always wanted, long before he took residence in the White House and acquired the executive capacity to ignite one. It is yet another example of where he is grossly at odds with the root and branch of his Republican Party.
It is a decision based on politics over economics. The United States is a net user of steel, in far greater proportion to the extent to which it is a steel producer. Manufactures consuming steel in the production process are responsible for more than 6.5 million workers, whereas the steel industry itself only employs about 140,000 workers.
If the cost of steel goes up, so will the cost of production for those American firms who rely on it to make up the core of their products. This clearly hasn’t made its way into White House thinking.
The unintended economic consequences could extend much further. Because of measures imposed on Chinese steel exports by Barack Obama, the Chinese are no longer a major steel exporter to the United States. Stepping into the void since then has been Canada (16 per cent of US steel imports), Brazil (13 per cent), South Korea (ten per cent) and Mexico (nine per cen) – all traditional allies of the United States who will bear the brunt of the tariffs levied.
A proxy war for control in an ever-fractured White House
Opposing factions in the White House are fighting out the battle for ideas – and the President’s ultimate decision – when it comes to the trade war. It is symptomatic of an administration that is preoccupied with who’s up and who’s down, instead of getting on with the job at hand.
Before his resignation Gary Cohn, the White House Economic Adviser, is leading the charge against tariffs. A Goldman Sachs alumnus (one of many in this White House), Cohn has persistently made the case that tariffs could lead to retaliatory trade measures that hurt American consumers and manufactures.
Meanwhile Peter Navarro, Director of Trade and Industrial Policy, Robert Lighthizer, US Trade Representative, and Wilbur Ross, Commerce Secretary, have made the case that protectionist measures are the only way to level the US trade deficit, even if it ignites trade wars. It is clear that, for now at least, the protectionists are winning the battle for the President’s heart and mind.
Does the Special Relationship make any difference here?
The working relationship between Theresa May and Trump remains resolute, something we should all welcome given the historic strength of transatlantic relations. But the initiation of a US-led trade war presents more awkward politics for the Prime Minister. She used a phone call with the President to express her “deep concern”, adding that multilateral action was the only way to resolve global steel overcapacity. Those claims will fall on deaf ears; May won’t be able to persuade Trump to stand down and it seems unlikely that anyone or anything will.
Instead, a global trade war is in the offing, voluntarily instigated by the United States – the very same government and administration that the UK is desperate to sit down at the negotiating table with to thrash out a Free Trade Agreement. A willingness to take sudden action at the expense of traditional friends and allies shows the office of the US Trade Representative will be far from easy to do business with.
The experience of this trade battle, highlighting the volatility of the US as a trading partner, will be a real cause for concern at the Department for International Trade as it begins to lay the groundwork for trading relationships in post-Brexit Britain.