The President’s Wild Week of Tariffs
It wasn’t surprising when President Donald Trump announced last week that he would be imposing tariffs on imported steel and aluminum. Maybe it shouldn’t have been surprising either that Trump did this without any preparation within the White House or consultations with trading partners or with government departments like State, Defense, and Treasury .
But a few days after that bombshell, Trump suggested on Twitter something of a rational reason for his impulsive announcement.
We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..
— Donald J. Trump (@realDonaldTrump) March 5, 2018
“Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed,” Trump tweeted.
Is it possible Trump announced the tariffs to move NAFTA negotiations forward? And when he said the tariffs could come off, did he mean only with respect to Mexico and Canada, or did it mean he would scrap the entire scheme if only the NAFTA partners would see the light and negotiate a new deal along Trump’s lines? Besides all that, it wasn’t clear if Trump meant to impose the tariffs globally or only against some nations.
The situation was made all the more confusing when Secretary of Commerce Wilbur Ross and White House trade adviser Peter Navarro appeared in television interviews early in the week, assuring viewers that the tariffs will apply across the board. But a few days later Navarro was quoted as saying that there would be carve-outs for Canada and Mexico, at least for now.
We now know that Trump was serious about playing a NAFTA angle with tariffs, given the exemptions given in yesterday’s proclamation to the two NAFTA partners, that came along with the threat of concluding a new NAFTA deal. The alternative, the president warned, would be the termination of NAFTA and the imposition of tariffs on Canada and Mexico.
We’ll probably never know whether Trump’s tweet was an after-the-fact rationalization for the tariffs move, thinking it clever to tie the steel and aluminum tariffs to NAFTA, or whether he had this in mind all along. It’s been said the tariffs were really all about China, but that country was mentioned only in passing during Trump’s presentation.
Mexico rejected the tie-in implicit in Trump’s tariff policy with NAFTA. “Mexico recognizes the problems of overcapacity in the steel industry at the global level, and will continue working in the search for a long-term solution,” said a statement from the Secretariat of Economy.
In other words, the problems of overcapacity should be addressed on a global level and should be directed toward those (the Chinese) that have generated that overcapacity. “More than two years ago, in the face of excess capacity in global steel production, Mexico took timely and effective measures to defend our industry, increasing our tariffs towards the countries generating this overcapacity,” the statement said. “As a result of these actions, we redirected our imports of steel to North America, proving that it is possible to address this problem and comply with our international commitments within the framework of the World Trade Organization.”
Meanwhile, “the steel and aluminum industry in North America has achieved a high degree of integration” in the last 20 years, the statement went on to say. “The three countries of the region have become the main suppliers and buyers of American steel.”
Trump’s tariff shenanigans cost him the services of economic advisor Gary Cohn, who lost the fight within the White House on the steel and aluminum tariffs and who resigned in the wake of the original announcement. Cohn’s resignation was a foreshadowing of things to come. Some observers had earlier on speculated that Trump could be talked out of imposing the tariffs. We now know that Trump is deadly serious about tariffs and about trade protectionism.