“Trade wars are good” according to Trump

On March 1st, Trump declared the U.S. would levy penalties of 25% on steel and 10% on aluminum imports. The details aren’t clear yet and it has yet to be explained whether the tariffs will apply to raw materials or finished goods. What is clear is that:

  • Imports make up about one-third of steel consumed by U.S. auto, aircraft, appliance manufacturers and other industries.
  • Containers & packaging make up about 18 percent of aluminum consumption in the U.S.
  • Imported aluminum is 90 percent of all aluminum.
  • Canada is the largest supplier of both to the U.S., responsible for more than half the aluminum and about 17 percent of steel.

“Simple supply and demand,” says Lee McMillan, a steel and aluminum analyst at Clarksons Platou Securities. “You eliminate or substantially tax a good portion of supply, and the overall price, the domestic price, rises.”

This is not new, precedent has been set. Trump deployed U.S. trade law, Section 232 of the Trade Expansion Act of 1962, which authorizes the president to restrict imports and impose unlimited tariffs on national security grounds. According to USA Today, Since the United States joined the World Trade Organization in 1995, it has pursued only two such investigations. On both occasions — a 1999 case involving oil imports and a 2001 case concerning iron ore and steel imports — the Commerce Department declined to recommend sanctions.

“It’s going to be a big problem,” said James Kaufman, president of Indianapolis Metal Spinning Co., which makes metal components for hubcap and lighting manufacturers. Kaufman said most U.S. aluminum producers don’t make the alloys his company needs. So he has little choice but to import them.

Kaufman said he also worries that the tariffs would raise the price of the steel that goes into his products, making his company less competitive with foreign rivals.

Overcapacity in China is said to be the problem. The action is part of a national security investigation launched last year by the Trump administration, invoking international trade rules which allow restrictions in times of war. Experts say the levies may be illegal under international law. And many nations have already threatened retaliation, which would make U.S. exports more expensive to consumers overseas. Upon the announcement, the Dow Jones fell 420 points, the S&P 500 and Nasdaq both declined 1.3 percent. It has been reported that the Gary Cohn, the Director of the National Economic Council and chief economic advisor to Trump threatened to resign if the tariffs were imposed.

How the tariffs will be levied, has yet to be explained. But, no matter how, it’s clear that the world and Trump’s own economic advisor are against it, and that a trade war is simmering.