Metal-ing with International Relations
Delivering on one of his campaign promises, President Donald Trump announced a series of tariffs on US imports to protect domestic jobs and industries. These enactments, comprised of a 25% tariff on imports of steel and a 10% tariff on aluminum, sent shockwaves internationally due to their far-reaching effects. Within hours of the statement, China responded by announcing $50 billion worth of tariffs of its own on US goods. The escalation did not end there: Donald Trump doubled down on his stance, instructing our trade representative to consider $100 billion in additional tariffs due what he viewed as China’s unfair retaliation. This drew sharp criticism, both from businesses and from within his own party.
It is important to understand what exactly is happening before delving into the reasons and justification for these actions. Trump is proposing a tariff, which is essentially a tax or duty that the government places on a class of imported goods. When put into effect, this makes the foreign products more expensive in hopes of boosting domestic makers of the product since they do not have to pay the tax. These tariffs aim to encourage the purchase of domestic steel and aluminum in favor of foreign products, which are stigmatized due to the perception that purchasing foreign-produced products decreases domestic jobs and domestic profit. The “trade war” rhetoric has become so strong exactly because when China responded with tariffs of their own, President Trump threatened another wave of steep tariffs on the country's exports to the United States. The possibility of a trade war is because of the potentially consistent, ever-increasing retaliation.
What prompted these drastic financial moves? First and foremost, Trump is asserting that China is stealing US intellectual property, and consequently, he wants them to pay financially. Also, tariffs make the economy look prosperous since the government will see increased revenue as imports enter the domestic market. Not only do import prices increase, but domestic industries also benefit from a reduction in competition due to the fact that import prices create artificial inflation. Another goal of Trump in this process is to protect domestic industries by propping up American steel and aluminum manufacturers. The hope is that as steel and aluminum from other countries gets more expensive due to the new taxes, more businesses will turn to American steel and aluminum makers to fill demand. Theoretically, that would breathe new life into industries that have been struggling for years. Finally, this aims to address dumping, or the process by which a country such as China sends cheap, excess steel into the global market to gain a quick profit.
Why are tariffs like this allowed to happen? This comes after the Commerce Department conducted two lengthy (but mostly closed-door investigations) under Section 232 of the Trade Expansion Act of 1962. This act authorizes the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports of any article on the ‘national security’ of the United States. Under this jurisdiction, Commerce Secretary Wilbur Ross concluded that imports of steel and aluminum threaten America’s national security and thus recommended that Trump impose comprehensive new import restrictions. A potential roadblock came in the form of having to justify the tariffs at the World Trade Organization, which is supposed to police agreed free trade rules. The United States can quite simply decline to declare the tariffs at the WTO, but there is an outside chance that they can still come under its jurisdiction if affected countries raise complaints.
With new shocking events unfolding by the day, the US is in a precarious position and must tread carefully to avoid a trade war. Then again, that may be exactly the intention.