President Trump imposed this spring a 25% tariff on imports of steel to the United States, and 10% on imports of aluminium. The EU’s temporary exclusion from these has just expired, and Brussels is threatening to retaliate.
It is now being suggested that Trump’s move means he will be an uncooperative partner for a free trade agreement with Britain, or even that this is no time for Britain to restore its own independent trade policy. But the facts of the case tell us something quite different.
First, what Trump has done is not fundamentally new. Johnson, Carter, Reagan, Clinton, Bush Jnr and Obama all imposed some kind of tariff or restraint on steel imports; George W. Bush’s being up to 30%. Trump’s tariff is slightly lower than the peak.
It is certainly troubling, however, that Trump has used national security as his justification, which is in order to avoid WTO disciplines on the use of anti-dumping and countervailing duty measures.
The EU will likely retaliate, indeed it has already described its plans: tariffs on Kentucky Bourbon and Harley Davidsons, among other things; a combination of targeting products made in the states of vulnerable House Republicans and an attack on symbolic Americana, with a view to impending Congressional elections — the EU is maximising that political leverage.
The EU is also set to bring a WTO case, which would require clarification of the national security exemption, which is not without risk. But this is normal service: Bush Jnr’s steel tariffs were followed by retaliation on oranges. Far from a trade war, then.
So what is Trump actually trying to do? The American administration is interested in three things here: China, Germany and North America. China is well known to provide all sorts of supports to its steel industry which constitute ways of gaming the system of world trade it has now joined — free land, water and so on.
While China is not even in America’s top ten foreign sources of steel (partly because of other tariffs from other trade remedy actions), this is a politically salient and symbolic manufacture. Coming from Sheffield — a city that once made more steel than the rest of the world combined — I can testify to its political symbolism for anywhere that does or did manufacture it in volume. China is most certainly in the top ten for a great many other imports, and Trump now has their attention.
As for the Germans, they export more steel to the US than China does, and the Americans are increasingly aware of Germany’s use of a now-impoverished Mediterranean buffer zone to keep down the Euro, creating for itself an artificial export stimulus, not to mention government support for a variety of businesses.
In North America meanwhile, we find the largest exporter of steel to the US — which is, in fact, Canada — and Mexico. Here we can assume Trump is applying pressure with a view to renegotiating NAFTA.
The tariffs in themselves will probably achieve little but slightly increased prices for the American consumer, blunted competitiveness for American manufacturers that use steel and aluminium, cases in the WTO, and the unnecessary use of what was supposed to be a narrow and rarely used exemption for national security.
But we should also recall that the EU has its own common external tariff, one which on average results in higher tariffs than the US applies. Yes, Trump’s next target may be cars, but here the EU tariff is 10%, compared with the American 2.5%, and zero for Japan.
For consumers, the impact is the same, with higher prices and less competitive domestic production. So disagree with Trump’s steel tariffs by all means, but let’s follow the logic through: EU tariff protectionism has punished us through needlessly high prices for years.
What should Britain do? Remember the Trump administration is not monolithic — there are a number of factions: consider Treasury Secretary Steve Mnuchin talking about the end of the trade war, White House advisor Pete Navarro claiming he misspoke, or Defence Secretary James Mattis saying that the US is concerned to avoid damage to certain allies.
But the UK is only in the line of fire because we are in the EU, where we share America’s punishment for the Eurozone, in particular, Germany, and for Brussels’s trade policies generally. There is no US interest or lobby for such tariffs on an independent UK. Indeed, shorn of German baggage, the US and UK would find common cause to try to take on anti-competitive distortions in other markets. In the meantime, persuading countries to limit their exports to the US is one way for Trump to make good on promises to the rust-belt constituencies that put him in office.
When we leave the EU, of course we will need our own trade policies to address tariffs and other barriers to our exporters, just as we will need our own remedies against the dumping of steel, among other problems. That means keeping our options open for how we approach China ourselves.
But instead of being a target for American tariffs, Brexit means we will avoid them. So the Trump vs Brussels steel spat does not preview the dangers we face out there in the big bad world. It tells us that the solution for the UK is simple: unless we want more expensive whisky, oranges, Harleys, and a great deal else, hurry up and get Brexit done.
Dr Radomir Tylecote is the Senior Research Analyst for the IEA’s Trade and International Competition Unit.