Trump must weigh retaliation over steel tariffs

Bloomberg

The US sounds confident that proposed tariffs on steel and aluminum won’t break global trade rules, despite warnings from other countries that such a move could trigger a flurry of retaliation. It’s up to the president to decide if that’s a risk he’s willing to take.
The Commerce Department laid out a range of options for President Donald Trump to consider, including a tariff of at least 24 percent on steel imports from all countries. In announcing the long-awaited proposals, Commerce Secretary Wilbur Ross acknowledged other nations may respond in kind.
“We believe, and our counsel believe, that this is a perfectly valid interpretation of national security,” Ross told reporters on a conference call. “As to whether there will be a challenge, it wouldn’t surprise us if there were. Anytime you do something that affects a number of countries, the likelihood is that they will bring a WTO action or take other measures.”
China said the proposed tariffs are groundless and it reserves the right to retaliate if they are imposed. JFE Holdings Inc., Japan’s second-biggest steelmaker, said it will discuss a response with related parties after looking more closely at the US announcement. India’s steel industry, which vies with Japan as the world’s No. 2 after China, probably won’t be hurt, according to K. K. Pahuja, president of the Indian Stainless Steel Development Association, in a report in the Business Standard.
The question is whether Trump is willing to court more trade conflict at a time when doubts are being raised about the longevity of the US economic recovery.
Assets such as stocks plunged this month as investors weighed whether the American economy may be overheating. Trump has complained repeatedly about what he sees as the unfair trading practices of countries such as China. But he has also touted the American economy’s strong performance of late, and he loves to boast about the stock market when it rises.
Some analysts are already predicting a backlash. Any of the options presented to Trump on steel would have a more significant and broader impact than expected, BMO Capital Markets analyst David Gagliano said in a note titled “The steel and aluminum trade war begins.”
American steel companies and steelworker unions have been pushing for Trump to follow through on his promise to protect the indu-
stry. Senator Chuck Schumer, the top Democrat in the upper chamber, said he hoped the recommendat-ions “are the beginning of efforts by this administration to finally get tough on China.”
But sweeping tariffs may not solve the problem of excess capacity in China, the world’s biggest steel producers. The US and European Union have complained for years that Chinese steel producers unfairly benefit from state subsidies, and dump their products on the world at below-market prices. But China only accounts for about 1 percent of US steel imports.

CLUMSY TOOL
“It’s a clumsy instrument for dealing with this problem, and it won’t change China’s behaviour,” said Christine McDaniel, senior research fellow at Mercatus Center at George Mason University in Virginia. The US imposed tariffs on steel early last decade, but wasn’t able to convince China to change its state-driven economic model, said McDaniel, who served as a senior trade economist in the White House Council of Economic Advisers.
“This is a pretty expansive use of national security which will inspire two things: one, retaliation, and two, it’s kind of a passport for other countries to emulate,” said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics in Washington.
In addition to tariffs of their own, countries such as China could challenge US action at the World Trade Organization, a process that could take years.
The president last year ordered Commerce to probe whether imports of steel and aluminum imperil US national security. In doing so, he invoked seldom-used Section 232 of the 1962 Trade Act, which allows the president to impose tariffs without congressional approval.
Trump has until April 11 to decide on any action on steel and April 19 for aluminum. He’s facing pressure from lawmakers in his own party, some of whom gave him an earful this week on the potential fallout. The president also risks alienating industries that either rely on steel and aluminum as inputs, or are worried about retaliation. A group called Farmers for Free Trade warned that US agricultural products such as chickens and sorghum could be first in the line of fire.

Tariffs hit GM, Ford
Bloomberg

Ford Motor Co. and General Motors Co. declined after the US Commerce Department recommen-
ded a crackdown on imported aluminum and steel, moves that could drive up the prices of raw materials for vehicles.
Both companies reversed gains after Commerce Secretary Wilbur Ross proposed a 24 percent global tariff on steel shipments coming into the US and a 7.7 percent duty on aluminum imports. The American Automotive Policy Council, a Washington-based trade group that represents GM, Ford and Fiat Chrysler Automobiles NV, warned in May that import restrictions would hurt the car industry and its workers.
Ford closed down 1.4 percent while GM dropped 1.8 percent in trading. Fiat Chrysler’s US shares were unchanged.
Expectations for pricier raw materials contributed to Ford’s forecast in January that profit will decline this year.
The automaker made a big bet a few years ago on aluminum by choosing to use the lighter-weight metal for the bodies of its lucrative F-Series pickups and biggest sport utility vehicles.