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Trump’s tariffs hammer the EU — and leave Canada and Mexico alone

And they hit many US allies harder than they hit China.

Chip Somodevilla/Getty Images

President Donald Trump on Thursday set in motion his highly controversial plan to make American steel and aluminum great again.

Flanked by metalworkers in the Roosevelt Room of the White House, Trump signed proclamations on Thursday afternoon that will impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports into the US. They will go into effect in 15 days.

“We want a lot of steel coming into our country. But we want it to be fair and we want our workers to be protected,” Trump said.

The tariffs he just signed are a more lenient version of the ones he proposed last week — a sign that forceful criticism by scores of Republican lawmakers and threats of a trade war from the US’s trading partners persuaded the president to try to soften the blow on imports.

While his original plan would have hit any country exporting steel and aluminum to the US, the proclamations Trump signed Thursday say that Canada, the top exporter of steel and aluminum to the US, and Mexico, the fourth-biggest exporter of steel, will be spared from the tariffs for now.

“Due to the unique nature of our relationship with Canada and Mexico ... we’re going to hold off the tariff on those two countries to see whether or not we’re able to make the deal on NAFTA,” Trump said.

Trump’s language wasn’t entirely clear, but he suggested that if the three countries are able to come to a deal in renegotiating NAFTA that’s to his liking, those countries will be exempt from the tariffs.

Trump also said that individual countries hit by the tariffs may be able to find some relief from sanctions if they can come up with alternative means by which to ensure that the US’s steel and aluminum supplies aren’t threatened. He declined to provide details on what that alternative arrangement might look like, but he described his stance as “flexible” and suggested that the US’s trade balance and military ties with countries would be a factor.

While the president has persistently argued for steel and aluminum tariffs as a way to create jobs in beleaguered American industries, the formal legal rationale for the measures is actually national security. The administration has invoked an obscure provision of the US Trade Expansion Act of 1962 called Section 232, which says that if the US doesn’t have reliable access to materials required for national security, it has license to set up big trade barriers in order to boost domestic production of them.

Trade experts say it’s a big legal gamble, since Section 232 has been used only a handful of times in the past 40 years and hasn’t been used since the World Trade Organization — which is effectively the world’s Supreme Court on trade — was formed in 1995. Since the US gets much of its steel and aluminum from countries that it considers allies, using Section 232 looks like a bad-faith exploitation of a loophole to most of the international community.

Trump’s announcement was met with immediate pushback by the GOP. Sen. Jeff Flake (R-AZ) said just minutes after the president spoke that he plans to devise legislation that would nullify Trump’s tariffs.

Even with the exceptions for Mexico and Canada, the administration is poised to put a dent in the steel and aluminum exports of a lot of countries — many of them key US allies and close trading partners. And perhaps most striking of all, they won’t have much of an effect on the world’s real source of aluminum and steel production woes: China.

Canada and Mexico are suddenly the big winners

When the plan for the tariffs was announced last week, Canada, the biggest exporter of steel to the US, was one of the loudest critics. But Canada and Mexico have now suddenly emerged as the big winners from the plan.

Not only are Canada and Mexico exempt from the tariffs but their competitors now face restrictions in the US market that they didn’t before. That means that Canadian and Mexican steel will suddenly seem a lot more attractive to US businesses that were importing steel from, say, the European Union.

Chad Bown, at the Peterson Institute for International Economics, calculated how much each county would lose each year under the plan Trump announced last week (before the revelation that Canada and Mexico would be exempt), taking into account how much each country could do to retaliate under World Trade Organization rules. Canada was going to take the biggest hit — about $3.2 billion, followed by the European Union with $2.6 billion.

Peterson Institute for International Economics

Bown hasn’t recalculated the potential losses after Trump announced that Canada and Mexico would be excluded, but he says they will be higher now for everyone else.

The European Union, South Korea, and Brazil will feel the most pain

The European Union is now the biggest loser. European countries that export a lot of steel to the United States, such as Germany, will feel even more pain now.

Another US ally that will take a hit is South Korea, which will likely lose more than $1.1 billion per year, based on Bown’s initial model. About 91 percent of the country’s steel coming into the US already faced some sort of tariff, duty, or safeguard in the US market. Now 100 percent of its steel exports to the US will be subject to a tariff.

Brazil, a major exporter of steel to the US, will also be hurt by the new tariffs. The South American nation exported 2.9 million metric tons of semi-finished steel to the US in 2017, making it the second-largest exporter after Canada. Marcos Jorge de Lima, Brazil’s trade minister, had traveled to Washington at the end of February to meet with Commerce Secretary Wilbur Ross about the proposed tariffs, reminding him that Brazil is one of largest importers of American coal.

The tariffs were “extremely concerning,” according to a statement released last week by his press office. “The Brazilian government will not discard eventual retaliatory action, on the multilateral or bilateral level, to preserve its interests in this situation.”

How do the tariffs hurt China?

The strange thing about the tariffs is that they end up punishing US allies more than the country that Trump has singled out most often in his protectionist rhetoric: China.

The main reason for the tariffs to begin with was to protect US steelmakers in the name of US national security, and the Commerce Department singled out China as the largest threat.

China produces about half of the world’s steel. “In the steel sector, free markets globally are adversely affected by substantial chronic global excess steel production led by China,” read one of the key findings of the Commerce Department’s steel investigation report.

In the past decade, the US had been ramping up the use of targeted tariffs to help protect the US steel industry from unfair trading practices, which include selling steel in the United States at a cheaper price than the price the exporting country sells it elsewhere (this is called “dumping”).

So China was frequently punished for this type of practice, and 94 percent of its steel exports and 96 percent of its aluminum exports to the United States are already being taxed. It hasn’t been exporting nearly as much steel to the US as it once did — which is why it won’t be as badly hurt by the tariffs.

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