On Thursday, President Trump, surrounded by steel workers in the Oval Office, signed a memo imposing tariffs on steel (25%) and aluminum (10%) that are imported to the United States.
He carved out two exceptions to the tariffs:
- Canada and Mexico would be temporarily exempted from the tariffs, pending the outcome of the ongoing renegotiation of NAFTA. The U.S. will likely insist that products imported tariff-free into the U.S. use steel produced within NAFTA.
- He directed USTR (U.S. trade representative) Robert C. Lighthizer to negotiate with those military allies that want to be excluded from the tariffs, but such exclusions would require trade reciprocity. The Trump administration is expert at using economic leverage to produce negotiated outcomes that benefit the United States.
This announcement marks a victory for the trade deficit hawks in President Trump's inner circle of economic advisers, including Wilbur Ross, Trump's secretary of commerce, and University of California at Irvine economics professor Peter Navarro, who was recently elevated to the ranks of the president's top-level advisers.
The economic recovery being produced by President Trump's tax cuts and deregulation is at stake. During the fourth quarter of 2017, real GDP grew at a 2.5% clip, which is good compared to growth rates during the Obama years, but it could have been much better. Here are the contributions to growth during the fourth quarter:
Contributor to GDP
|
Resulting Growth
|
Consumption
|
2.6%
|
Fixed Investment
|
1.3%
|
Change in Inventories
|
-0.7%
|
Government Purchases
|
0.5%
|
Net Exports
|
-1.3%
|
Total
|
2.5%
|
The reduction of inventories by 0.7% is not of concern. It simply means that business inventories declined by 0.7% of our GDP, probably because businesses were selling more than they had anticipated. The concerning factor is the worsening net exports (i.e., trade balance), which reduced GDP growth by 1.3% of our GDP. If not for the worsening trade balance, GDP growth would have been an outstanding 3.8% during the fourth quarter.
Critics point out that the tariffs will raise the price of products fabricated with steel or aluminum. But the existing low prices of iron and steel and aluminum are at the expense of American producers in those industries. American consumers should not be favored at the expense of American wage-earners.
The reality is that the same countries that produced the most steel in the world produced the largest trade deficits in the United States (deficits shown as negative trade balances):
| Country |
Steel Production millions of tonnes
|
U.S. Trade Balance millions of dollars
|
| China |
808.4
|
-316,273
|
| Japan |
104.8
|
-58,286
|
| India |
95.6
|
-19,455
|
| United States |
78.5
|
-----
|
| Russia |
70.8
|
*-10,016
|
| South Korea |
68.6
|
-18,977
|
| Germany |
42.1
|
-52,886
|
| Turkey |
33.2
|
*330
|
| Brazil |
31.3
|
6,322
|
| Ukraine |
24.2
|
*809
|
| Italy |
23.4
|
-27,061
|
| Taiwan |
21.8
|
-14,739
|
| Mexico |
18.8
|
-59,286
|
| Iran |
17.9
|
*75
|
| France |
14.4
|
-12,454
|
| Spain |
13.6
|
*-4,646
|
| Canada |
12.6
|
-13,765
|
| Total |
1629.6
|
-568,400
|
*goods only, does not include services
| ||
The biggest steel-producing country in the world in 2016 was China, which accounted for about half of the world's steel production and more than half of the U.S. trade deficit. Imposing tariffs on such products is a way to balance trade.
What of fears of a trade war? Most of the above countries are already participating in a trade war with the United States, except that the United States has not been fighting back. The governments of these countries have been manipulating the terms of trade to enhance their exports to the United States and keep out U.S. products. As a result, we get debt, and they get...
