Tue, Mar 13, 2018 - Page 9 News List

Trump’s tariff plan brings a gun to a knife fight — a gun aimed at his foot

It was not a total surprise that Australia was spared the steel and aluminum tariffs as the US president’s bluster of leveling tariffs for everyone is weakening

By Greg Jericho  /  The Guardian

Last week saw leaders around the world trying to remember whether they were meant to take US President Donald Trump seriously, but not literally, or literally, but not seriously, and also wondering if they have a Greg Norman somewhere they could use.

When Trump announced early in the week he was going to levy a 25 percent tariff on steel and a 15 percent tariff on aluminum imports, he suggested it was to protect national security.

As with most Trump utterances, it left everyone trying to decipher just what he meant, because the US imports nearly half its steel from four nations — Canada, Brazil, South Korea and Mexico — which are hardly enemies of the US.

Was he doing this to attack China?

He did write a series of tweets that suggested trade with China is in his sights, but while China is the biggest producer of steel, it only exports a small percentage of it to the US.

Some of his other tweets suggested that Trump was instead targeting Europe, but again, hitting steel imports was an odd way to go about it — given Europe made it quickly obvious that it would retaliate with tariffs of its own — and the EU is one of the few economies with enough grunt not to get pushed around by the US.

Then came the suggestion that Trump was using this to negotiate with Canada and Mexico over the North American Free Trade Agreement — but that was also odd because that shot down his national security reasoning and opened the US up to retaliation under WTO rules (which would be likely anyway, given his national security reasoning was clearly bogus).

Using the threat of increasing tariffs in free-trade negotiations is a weird way to go about things.

The tariffs do hurt the nations that export steel and aluminum to the US, because they force them to charge more for their product, thereby giving US steel companies an advantage, but they also hurt the US.

Tariffs are effectively consumption taxes designed to give local industries an advantage (or at least an equal footing with international competitors) and they work by raising the price of imports.

Now that is great for the owners and possibly workers of those industries, but not so good for anyone else who wants to buy those goods, because now they have to pay more.

A tariff on steel and aluminum imports might help create a few extra jobs in the steel industry, but it also increases the price of all things made with steel and aluminum.

That leads to job losses in those industries and also reduces the living standards for everyone because suddenly they have to pay more for things such as canned goods, beer and cars.

One study suggested that for every job gained in the steel and aluminum industries, five would be lost elsewhere.

That does not mean all free trade is a win for everyone — and international trade does not occur in a textbook, but rather in the real world where governments subsidize and assist industries.

However, the general rule is that the costs to the economy increase with the size of the tariff and the number of industries affected (and similarly the benefits of lowering them reduce as the tariff gets closer to zero).

A 25 percent tariff on steel is therefore a rather hefty whack.

Trump is in effect going to the negotiating table with a massive weapon — a bit like taking a gun to a knife fight. The only problem is he has the gun aimed at his own foot.

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