By: Uzair Salman
Imposition of punitive tariffs on steel and aluminium imports
Unswayed by warnings of a trade war, President Donald Trump, on March 08, ordered steep new tariffs on steel and aluminum imports to the United States, vowing to fight back against an “assault on our country” by foreign competitors. Flanked by steel and aluminium workers and key staff, Trump said he had to act to stop the “decimation of entire communities” and insisted there would be a very fair process as the administration sought to use next 15 days to negotiate exemptions with allies. Canada and Mexico will be exempted. “Steel is steel,” said Trump, “without steel you don’t have a country.”
President Donald J. Trump has announced that he will apply across-the-board tariffs, or import taxes, on steel and aluminum. Trump argues that the measures are necessary to protect US national security, which he claims has been degraded by the decline of the domestic steel and aluminum industries. Many economists, however, say that previous experience shows that such tariffs will likely fail to revitalize domestic producers while imposing costs on the rest of the economy. Meanwhile, trade experts worry that the tariffs – 25 percent on steel and 10 percent on aluminum – could set off a trade war that could ensnare some close US allies, such as Canada, and undermine the global trading system.
1. What is a trade war?
The dictionary says it is “an economic conflict in which countries impose import restrictions on each other in order to harm each other’s trade.” Trump’s tariffs and the threatened retaliation from other countries certainly meet that definition, but so do centuries of protectionist skirmishes by numerous countries in countless sectors, not just the US and not just in steel. What could make this episode more war than skirmish is Trump’s invocation of national security to justify tariffs – which could open a Pandora’s box of similar claims by other nations – and his threat to further punish any country that reacts by imposing counter-duties.
2. What are tariffs?
A tariff is a tax or duty that the government places on a class of imported goods (tariffs on exports are very rare). In theory, this makes the foreign products more expensive, and therefore less desirable to consumers — boosting domestic makers of the product, which don’t have to pay the tax. The tariff is collected by customs officials and goes to the government.
3. Why Trump put tariffs?
The goal is to protect domestic industry by propping up American steel and aluminum manufacturers. The hope is that as steel and aluminum from other countries gets more expensive due to the new taxes, more businesses will turn to American steel and aluminum makers to fill demand. Theoretically, that would breathe new life into industries that have been struggling for years.
4. Does Trump say it’s a trade war?
He suggested so with a March 2 Twitter post that declared trade wars “good, and easy to win.” Three days later, discussing his proposed tariffs, he said he didn’t think they will lead to a trade war. Trump’s focus is the US trade deficit, which shows the country imports hundreds of billions of dollars more than it exports. Stepping back from trade deals like Nafta and the Trans-Pacific Partnership also appeals to Trump’s base of voters in America’s Rust Belt. But talk of a trade war is alarming to many US business leaders, who largely support existing trade deals, and the securities markets, which fear lower profits and slower economic growth if the US turns protectionist and other countries retaliate.
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