John Rodriguez monitors the operation as a slab of steel is heated and rolled into a coil of steel at the NLMK Indiana steel mill on March 15, 2018, in Portage, Indiana. Steel producers in the US and worldwide are preparing for the impact of the recently-proposed 25 percent tariffs on imported steel by the Trump administration. (Photo: Scott Olson / Getty Images)
The US and the world are hurtling toward a full-blown trade war over the tariffs imposed on imported steel and aluminum. President Trump, meanwhile, is plowing blithely ahead, suggesting that further, broader-based tariffs against Chinese products are forthcoming in conjunction with a probe into intellectual property theft by China. The president has also taken to proclaiming on his beloved Twitter account that trade wars are good and easy to win. He had better hope so, as all signs suggest that the trade war he has instigated will be disastrous all around: for foreign relations, for the economy, for relevant industries and — most tragically — for the very people he was purporting to protect: US workers in the steel and aluminum sectors.
On March 1, flying in the face of common sense and his advisers’ desperate warnings, Trump slapped a 25 percent duty onto steel and 10 percent on aluminum. The White House promised that these punitive measures will kick-start the ailing US metals sector and energize the US’s long-neglected “rust belt.” This was the president’s chance to do right by those who voted him into office out of fear of losing the means to feed their families. But if there’s one metric on which Trump is sure to deliver, it’s disappointment. After all, Trump’s tariffs fail to sustainably address the source of the issue and will actually have the opposite effect to that intended.
Steel is one thing, as US businesses import just a third of the steel they require, and experts are fairly confident that domestic production can be increased sufficiently to make up for the shortfall.
The aluminum industry, however, is a whole different ball game. More than 90 percent of primary aluminum used by US companies has to be imported. Idle US aluminum smelters are extremely old — the last new one was built in 1980 — and high electricity costs make aluminum smelting almost prohibitively expensive. In addition, the US simply doesn’t have enough raw materials (bauxite) for primary aluminum production, and has been almost entirely dependent on imports since the last domestic mine closed nearly three decades ago. That’s why not even the Aluminum Association, the industry’s trade group, supported the tariffs, recommending instead measures that would address the root of the issue: Chinese aluminum overcapacity.
Both Republicans and Democrats agree that ever since China joined the World Trade Organization in 2001, Beijing has unleashed a tsunami of cheap aluminum on global markets. By fully embracing the free-trade gospel, Washington played an active role in the destruction of countless jobs and livelihoods in the metals sector. Since 2001, the number of aluminum smelters in the US has fallen from 23 to five. In the last 18 months alone, around 3,500 aluminum jobs have disappeared.
And with Trump’s tariff in effect, the other 97 percent of the jobs relying on aluminum will be put on the line. Car manufacturers, homebuilders and breweries, which need aluminum to make their products, have joined other workers in raising the alarm in Washington. Not only will tariffs push prices up and act as a tax on consumers, they will also lead to drastic job losses in the downstream aluminum industry. Given that these sectors employ more than 20 times as many people as aluminum smelting itself, it’s obvious that the economic risks by far outweigh the supposed benefits.
The US car industry, in particular, is painfully familiar with the consequences of such reckless measures. Its experience should have been an example for the Oval Office. In 2002, then-president George W. Bush tried similar tactics to protect US steelmakers, imposing up to 30 percent tariffs. The strategy was abandoned early because of its disastrous effects. Some 200,000 jobs were lost in 2002 alone to higher steel prices, scuttling more jobs than there are steelworkers in the US.
There’s no reason to think the same thing won’t happen again. Trump’s policies are placing downstream workers in the aluminum industry in grave danger — not to mention that they risk the well-being of many other sectors that could be affected by retaliatory measures against the US, like food production.
However, damaging the US economy is merely half of the problem with Trump’s approach. Tariffs do nothing to tackle the structural cause of US industries’ decline, namely Chinese overcapacity.
Beijing certainly won’t be wringing its hands over the tariffs, though Trump seems likely to test their patience if he extends them beyond steel and aluminum. For the US’s domestic demand, Chinese aluminum is small fry — though suspicions linger that China may be getting some of its metals onto US markets through third countries, thereby circumventing already existing import duties. Not that this really matters: Between 2013 and 2016, only 6 percent of total US aluminum imports came from China, and Beijing’s total exports of both steel and aluminum to all countries accounts for just 0.5 percent of its GDP.
So, if the Middle Kingdom will barely feel the effects of the tariffs and the middle class has nothing to gain from their passing; who wins? The truth is that, in their current form, the tariffs are a godsend for US (and perhaps Canadian) aluminum executives, even larger than the administration’s disastrous tax bill. Once Trump’s executive order takes effect, domestic companies like Alcoa, Century Aluminum or Constellium will be able to charge much higher prices and reap much higher profits — so much for protecting the working class.
Next, if countries like Canada are granted exemptions from the tariff, US consumers will actually play an active role in subsidizing our northern neighbors’ industry. Ottawa will be able to swoop in and replace much of the imports the US has been getting from other countries — and make billions in the process.
Small wonder, given these high stakes and low returns, that Trump’s measures have been almost universally criticized. House Ways and Means Chairman Rep. Kevin Brady (R-Texas) likened this sort of punitive trade measures to “old fashioned chemotherapy” in that it isn’t “used as much because it can often do as much damage as good.” Influential China scholar Ryan Hass went further, describing the tariffs as “one of the most lopsidedly self-destructive US trade policy decisions in recent memory.”
Trump’s tariffs will destroy jobs, do little to revive the country’s aluminum industry, wreck the US’s diplomatic relations and boost the fortunes of countries granted exemptions. What better way to start a trade war than by punching yourself in the face?
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