Trump’s plan to slap tariffs on steel imports carries big economic and political risks

President Trump was standing on the banks of the Ohio River, and as barges loaded with West Virginia coal floated by, he noted that half the United States’ steel is produced within 250 miles and told the crowd that soon “the steel folks are going to be very happy.”

Within that same distance lies the bulk of the U.S. auto industry, which the president also has promised to protect. But carmakers are dreading what Trump apparently was alluding to: plans to impose significant punitive tariffs or quotas on steel imports.

Trump has promised to crack down on unfair foreign traders and restore the fortunes of American manufacturing. Few industries are as important as steelmaking, and Trump sees steel as an emblem of industrial power as well as being vital to the country’s national security.

But the president faces a conundrum: Making good on his Cincinnati pledge earlier this month may help domestic mills by restricting foreign steel and boosting U.S. steel prices. But that same action almost certainly will mean higher costs for American makers of cars, appliances, machinery and construction materials, and for many other manufacturers that cut, bend and otherwise fabricate steel. That could lead to higher prices for consumers and job losses.

Today American farmers, among others, worry that any new steel tariffs will spill over to them. U.S. Wheat Associates, in written comments to the Commerce Department, said it was “extremely concerned” and urged the Trump administration to “consider the fallout if other countries follow suit and impose restrictions on U.S. wheat or other products as a result of their own national security concerns, whether real or imagined.”

U.S. wheat growers, like producers of corn, soybeans and other farm goods, are heavily dependent on exports and are considered particularly vulnerable in a trade war. Disruption of critical food supplies would have ripple effects globally, Wheat Associates said, suggesting that in protecting steel, the Trump administration could threaten the flow of food shipments that may be as integral to national security as steel production.

Another tough question facing Trump is how broadly would any such steel tariffs apply. Which countries would feel the sting of its measures?

Most of the steel imports come from countries that have long been among America’s closest allies, including Canada, South Korea, Japan, Germany, France, Britain and Australia. In his 2002 steel tariffs, Bush excluded Canada and Mexico, and analysts expect the same from Trump, especially as the U.S. is gearing up to renegotiate the North American Free Trade Agreement.

The U.S. already has in place some tariffs on various steel from China and some other countries, for selling products below cost or with the unfair benefit of government subsidies. As a result, steel from China accounted for just 3% of total U.S. steel imports last year, although that does not tell the whole story. Steel shipments to the U.S. from Turkey, for example, have doubled since 2013, and the American steel industry says Turkey has been buying cheap Chinese steel billets, turning them into products and then loading them onto boats to America.

It’s one thing to impose tariffs on China and even Turkey, a NATO partner, but quite another if Trump decides to apply tariffs or quotas broadly, on friends and allies alike, said Reinsch, the trade expert at the Washington, D.C.-based Stimson Center think tank.

“We’re doing this at the same time we’re trying to get Korea to make operational the U.S. anti-missile system,” he said. “We’re going to push them on steel at the same time we’re trying to get Japan to negotiate a free-trade agreement, and EU the same thing.” There will be consequences, he said.

Greenblatt, the CEO of Marlin Steel Wire, said it’s hard enough already competing with European rivals. If Trump imposes tariffs, he reckons he will be paying even more for American steel, while Germany and others may continue to buy China-made steel at a cheaper price, making it even tougher to win business in the global market.

“My heart bleeds for the steel mill guys,” he said. “But the steel fabricators are going to get their heads handed to them if everybody else buys from China.”

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