Trump tariffs on steel would hit China -- and the entire global trading system

If President Trump decides to impose steep tariffs on steel, it would be a direct shot at Beijing.But the list...

Posted: Feb 19, 2018 9:22 AM
Updated: Feb 19, 2018 9:22 AM

If President Trump decides to impose steep tariffs on steel, it would be a direct shot at Beijing.

But the list of countries that would be affected doesn't end with China. Limiting or taxing steel imports could also hit Canada, Brazil, South Korea, and Russia - and the implications could ripple throughout the entire trading system.

On Trump's desk are a broad range of trade options meant to bolster the domestic steel industry. The recommendations sent from the Commerce Department include across-the-board tariffs, targeting select nations with even higher tariffs and capping how much steel comes into the country.

The president has until April to choose any one of these options, a combination of them or entirely different trade actions. He has a similar set of recommendations on aluminum.

In the past, the president's rhetoric on steel has focused on China. Since starting his run for office, Trump has laid into China for sending excess cheap steel into the global market, which he says makes it impossible for American steel companies to compete.

"China is dumping steel all over the United States, okay? It's killing you," Trump said at a campaign rally in Pittsburgh in April 2016. "Maybe we get a little lower price, but we lose all the jobs."

It's true that China, the world's top exporter of steel, is a major source of a global supply glut that has driven down prices. American and European steelmakers have made complaints echoing Trump's criticism for years.

Related: China warns Trump over potential steel and aluminum tariffs

However, China is not the top country from which the United States imports steel. In fact, it's not even in the top 10.

Due to the trade penalties the United States has slapped on Chinese steel during past administrations, China sends much less steel to the U.S. than it used to.

"Direct Chinese steel shipments to the United States have gone way down in the past few years," said William Reinsch, a trade expert at the Center for Strategic and International Studies who also served in the Clinton administration.

The United States imports most of its steel - 16% - from Canada. It imports 13% from Brazil, 10% from South Korea, 9% from Mexico and 9% from Russia, according to a Department of Commerce report from December 2017.

That means that a 24% tariff on steel imports from all countries - one of the proposals on the table - would also have a major impact across the globe.

Trade experts say that if Trump goes that route, even U.S. allies like Canada, South Korea, Mexico could be willing to retaliate, sticking tariffs of their own on U.S. exports like agricultural products, or picking non-U.S. goods - like Airbus planes over Boeing models.

"There's a delicate balance between making it effective and easy to protect the domestic industry and irritating a broader group of international trading partners," said Michael Moore, who specializes in international trade at George Washington University.

Related: Who has the most to lose in a Trump-China trade war?

China would still feel the pain from protective U.S. measures. A lot of China's steel makes its way to the United States indirectly.

Unfinished steel products are sent to less developed countries like South Korea and Vietnam. There, workers put on the final touches and ship the finished product to the United States. It's then is marked as a Korean or Vietnamese import, Reinsch said.

"If you shut that path off as well ... indirectly, that comes back and bites the Chinese," Reinsch said.

China warned Saturday that it would take action if "the United States' final decision affects China's interests."

Even if Trump does not decide to enact an across-the-board tariff, the other options he's considering will also resonate globally.

That's because the Commerce Department is advising Trump to take action under a little known trade law from 1962.

If Trump invokes Section 232 of the Trade Expansion Act, as is recommended, that means he believes steel imports are hurting national security.

Experts say that rationale is flimsy, and isn't likely to hold under the rules established by the World Trade Organization.

In fact, it could be deemed such a flagrant violation of the rules that it could open the door for tit-for-tat responses from other countries, according to Matt Gold, an international trade law expert at Fordham University.

"When we commit a major violation of global trading rules, it really shakes the foundation of the whole global trading system," Gold said.

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