Trump’s Steel and Aluminum Tariffs Are Counterproductive. Here Are 5 More Things You Need to Know

President Trump’s plans to impose new tariffs of 25 percent on steel and 10 percent on aluminum on all trading partners are driven by what the administration claims are “national security” grounds: that these industries are vital to protect the United States in case of war.[1] But Trump’s invocation of a national security rationale under Section 232 of the Trade Expansion Act of 1962 is misdirected and contradicted by his own statements.

In discussing the issue, for example, the president refers not to national security but his concern that trade in these products is “unfair”—that foreign production was being subsidized and exports were being dumped into the US market. Indeed, no one—not even critics of Trump’s policies—disputes that global overcapacity is a major concern in the global steel and aluminum industries and that China’s out-of-control steel and aluminum production is the main culprit.[2]

Yet President Trump’s newly proposed tariffs will have little direct impact on imports from China. Based on the Trump administration’s analysis, my calculation is that his proposed tariffs would eliminate $14.2 billion of US imports in a year—but only $689 million from China, less than 5 percent of the total.  More than 50 percent of the trade losses—or $7.5 billion—would hurt US military allies on whom Washington would have to count in any national security emergency: the European Union, Canada, Japan, and South Korea alone.

Here are five reasons why Trump’s trade attacks are misdirected.

1. Steel has been the largest beneficiary of special protection for decades

President Trump did not just discover the plight of these sectors. The US steel industry has for many decades requested and received special protection from imports from Europe, Japan, South Korea, and other Asian economies. Various administrations have granted the industry’s requests, imposing trigger price mechanisms, special tariffs, and quotas, or persuading producing countries to restrain their exports voluntarily.[3]

More recently, the industry won protection under US trade laws allowing antidumping and countervailing duties in cases of exports that have been shipped at below cost or subsidized. Another law, relating to “safeguards,” has also been invoked to protect industries hit hard by imports. Figure 1 illustrates the share of US imports of steel covered by such protection since 1995.[4]

As of the end of 2017, more than 60 percent of US imports of steel were already covered by previously imposed special protections.  This share is massive by any measure. The average share of all US imports from the world already covered by trade barriers was only about 4 percent as of 2016 (Bown 2017b).

Note: Special tariffs include safeguards, antidumping, and countervailing duties.

Source: Constructed by the author following the methodology described in Bown (2017b) with antidumping and countervailing duty data from Bown (2016), which have been updated from the Federal Register. Steel products as defined by the scope of Harmonized Tariff Schedule codes in Department of Commerce (2018a).

This coverage level is the highest since 2003, when 80 percent of steel imports were covered by the “safeguard” tariffs imposed by President George W. Bush in 2002. President Trump’s proposed 25 percent tariffs on all foreign sources of steel would increase each of the series in figure 1 from their 2017 levels to 100 percent of steel imports, by definition.

2. More than 90 percent of US steel imports from China are already subject to special tariffs

President Trump and Commerce Secretary Wilbur Ross repeatedly single out China as the principal target of the administration’s latest actions. But earlier trade restrictions already cover nearly 94 percent of US imports of steel products from China. As a result, Trump’s 25 percent tariff would have less impact on China than on other producers, many of them important security allies of Washington.

While also extremely high, “only” 54 percent of US steel imports from all other (non-China) sources were subject to US antidumping and countervailing duties as of 2017 (an increase from 2012, when the level was 30 percent).

3. Trading partners vary considerably as to who has already been hit with special US steel tariffs

Figure 2 illustrates the top 10 foreign sources of US steel imports in 2017 as well as the share of their steel exports to the United States already covered by US special protection.

The top supplier to the US market in 2017 was Canada at $5.2 billion. None of its steel products were subject to these sorts of special tariffs. Other major suppliers like Germany, Mexico, and Brazil have less than 40 percent of their exports subject to prior US special tariffs. The European Union member states (not shown in figure 2) collectively were the largest foreign steel supplier to the United States in 2017 at $6.2 billion.[5]

China, on the other hand, was only the 10th largest supplier of steel to the US market in 2017 ($976 million), largely because 94 percent of those exports were already subject to special tariffs.

Note: Special tariffs include safeguards, antidumping, and countervailing duties.

Source: Constructed by the author following the methodology described in Bown (2017b) with antidumping and countervailing duty data from Bown (2016), which have been updated from the Federal Register. Steel products as defined by the scope of Harmonized Tariff Schedule codes in Department of Commerce (2018a).

President Trump’s proposed tariffs could increase the share of steel imports covered by tariffs from their 2017 levels (the black bar in figure 2) to 100 percent of each country’s steel exports. The size of the negative effects would vary considerably, depending on the trading partner’s starting point of how much of its exports were previously covered by earlier special tariffs.

In trade value terms, I estimate that the largest negative impacts would be on Canada, the European Union, South Korea, Mexico, and Brazil (Bown 2018).

Importantly, Trump’s claim that the objective is to protect national security is belied by the fact that the new tariffs would impose more than 54 percent of the total trade losses in steel—or $6.1 billion— on US military allies of the European Union, Canada, Japan, and South Korea alone.

4. Aluminum has only recently become a beneficiary of special protection

The US aluminum industry has a different history of trade protection under these special tariffs. The sector has been covered by tariffs under these laws only since 2009 (figure 3).

As of the end of 2017, 15 percent of US imports of aluminum were covered by special protection arising under US antidumping and countervailing duty laws.

Note: Special tariffs include safeguards, antidumping, and countervailing duties.

Source: Constructed by the author following the methodology described in Bown (2017b) with antidumping and countervailing duty data from Bown (2016), which have been updated from the Federal Register. Aluminum products as defined by the scope of Harmonized Tariff Schedule codes in Department of Commerce (2018b).

5. Aluminum’s special protection to date has been directed exclusively toward China

To date, the US aluminum sector’s only target for special import tariffs has been China. As in steel, such trade restrictions already cover nearly 96 percent of US imports of aluminum products from China (figure 4). This explains why Trump’s 10 percent tariff on aluminum would have less impact on imports from China than on many other US trading partners.

Note: Special tariffs include safeguards, antidumping, and countervailing duties.

Source:  Constructed by the author following the methodology described in Bown (2017b) with antidumping and countervailing duty data from Bown (2016), which have been updated from the Federal Register. Aluminum products as defined by the scope of Harmonized Tariff Schedule codes in Department of Commerce (2018b).

As figure 4 illustrates, US aluminum imports from China in 2017 were $1.8 billion, or about 10 percent of US imports of the product. Canada is the largest source of US aluminum imports at $6.9 billion, or 40 percent of US aluminum imports.[6]

Trump’s proposed new tariffs would increase the share of aluminum imports covered by tariffs from their 2017 levels (the black bar in figure 4) to 100 percent of each country’s aluminum exports. The largest negative impact would be on Canada (Bown 2018).

Trump’s national security tariffs would impose nearly 50 percent of the total trade losses in aluminum—or $1.4 billion—on US military allies of the European Union, Canada, Japan, and South Korea alone.

Trump’s tariffs will help, not hurt, China by making global cooperation to push China on its trade policies more difficult

The US steel and aluminum industries already receive considerable import protection—especially on imports from China—even before President Trump contemplates imposing new tariffs. The new US tariffs would have little direct impact on China but would mostly harm exports from US allies.

The global community requires a coordinated approach to address the concerns raised by China’s overcapacity in these industries. New tariffs will impose economic and political costs on allies like Canada, the European Union, Japan, and South Korea, making them less likely to cooperate with the Trump administration on finding a solution.

Chad P. Bown is senior fellow at the Peterson Institute for International Economics. He thanks Junie Joseph and Tessa Morrison for outstanding research assistance and Steve Weisman for useful comments. Follow @ChadBown on Twitter.

References

Bown, Chad P. 2018. “Trump’s Steel and Aluminum Tariffs: How WTO Retaliation Typically Works.” Trade and Investment Policy Watch blog, March 5.Washington: Peterson Institute for International Economics.

Bown, Chad P. 2017a.  US-China Trade Disputes and the World Trade Organization. Chapter 9 in  US-China Cooperation in a Changing Global Economy, ed. Adam S. Posen and Jiming Ha. PIIE Briefing17-1.Washington: Peterson Institute for International Economics.

Bown, Chad P. 2017b. Steel, Aluminum, Lumber, Solar: Trump's Stealth Trade Protection. PIIE Policy Brief 17-21. Washington: Peterson Institute for International Economics.

Bown, Chad P. 2016. Temporary Trade Barriers Database. (March 6). Washington: World Bank.

Department of Commerce. 2018a. The Effect of Imports of Steel on the National Security: An Investigation Conducted under Section 232 of the Trade Expansion Act of 1962, as Amended. US Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, January 11.

Department of Commerce. 2018b. The Effect of Imports of Aluminum on the National Security: An Investigation Conducted under Section 232 of the Trade Expansion Act of 1962, as Amended. US Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, January 17.

Devereaux, Charan, Robert Z. Lawrence, and Michael D. Watkins. 2006. Standing Up for Steel. In Case Studies in US Trade Negotiation, Volume 2: Resolving Disputes. Washington: Peterson Institute for International Economics.

Notes

1. Chad P. Bown, "Trump has announced massive aluminum and steel tariffs. Here are 5 things you need to know," Washington Post (Monkey Cage), March 1, 2018.

2. For a discussion and data analysis, see (Bown 2017a).

3. See the review in Devereaux, Lawrence, and Watkins (2006).

4. This includes steel products affected by protection imposed since 1989. Import protection under these laws imposed prior to 1989 would not be included because data are unavailable. For the purposes of this blog post “steel” is defined as all products listed in Department of Commerce (2018a) and “aluminum” is defined as all products listed in Department of Commerce (2018b).

5. See Bown (2018, figure 1).

6. While not shown, the European Union member states collectively exported $1.1 billion of aluminum to the United States in 2017 (Bown 2018, figure 1).