In early March, President Trump announced forthcoming import tariffs on both steel and aluminum, leaving key trade allies scrambling for possible exemptions and prompting wild speculation of artificial price inflation.
European Union trade commissioner Cecilia Malmstrom abruptly flew to Washington to push back against the proposed measure. Ultimately, the commission proved successful, as the EU, Argentina, Australia, Brazil, Canada, Mexico, and South Korea received exemptions, protecting two-thirds of world steel production from the proposed tariffs.
While smoothing over relations with allies, these exemptions quickly undermined the initial leverage the proposed tariffs granted, representing a serious threat to the sustainability of the U.S. steel industry.
Immediately following the announcement of tariff exemptions on March 22, shares of U.S. Steel Corp dropped 11 percent, while the S&P steel index fell 7.4 percent, the largest single-day drop since 2011. These economic downturns could easily jeopardize the creation and sustainment of domestic steel jobs, including the 500 new jobs announced by U.S. Steel in March.
Fortunately, the tariff exemptions are temporary, bearing a May 1 expiration date. When these measures have lapsed, the president should continue to use tariffs to hold bad actors accountable.
These economic measures have already given the Trump administration an effective bargaining chip to combat steel market overcapacity, and to give American companies access to foreign markets they were previously barred from.
South Korea agreed to reduce its steel exports to the U.S. by 30 percent in March, all to avoid Trump’s proposed 25 percent tariff. Additionally, the agreement allows U.S. car companies to sell 50,000 cars per year in South Korea, forgoing additional testing. This exercise in South Korea proves that tariffs, or the mere threat of tariffs, work.
“In lieu of tariffs on steel, we have a quota which is equal to only 70 percent of their shipments from the last few years, and this will be as effective as the tariffs, and preserve the integrity of the steel industry. So let’s not talk about exemptions letting anybody out,” Trump trade adviser Peter Navarro told NPR, and his judgement rings true.
Trump recently placed $60 billion in tariffs on China, an actor that depresses U.S. steel production and prices by illegally subsidizing domestic production of steel to sell in the global marketplace, also known as “dumping.”
While this is an excellent move, China isn’t the extent of the issue, as 85 percent of U.S. steel trade cases have involved countries other than China in the last four years.
In 2015, six major steelmakers filed anti-dumping and countervailing duties charges against China, India, Italy, South Korea, and Taiwan, alleging a violation of international trade law by importing government-subsidized steel.
“These unfairly traded imports have seriously impacted pricing in the U.S. market, which has resulted in a significant negative effect on our production, sales and earnings,” AK Steel President James Wainscott wrote in a statement.
Clearly, in order to protect the U.S. steel industry, the president should not consider further exemptions, as even trade “allies” are actively engaging in predatory business practices. By extending tariffs to all countries that break the rules, Trump could shore up our economy and national security, keeping a vital domestic industry alive.