Man of Steel Tariffs

Trump's steel and aluminum tariffs come with carveouts and are part of a more strategic agenda.

Nate Jackson · Mar. 9, 2018

President Donald Trump announced his 25% steel and 10% aluminum tariffs Thursday, a week after floating the idea. They’ll take effect in two weeks. Perhaps most importantly on the actual policy, Trump carved out exemptions for Canada and Mexico while NAFTA negotiations continue — just as we speculated he would. Trump also indicated there would be possible exemptions for other nations if reciprocal trade concessions are made.

The economics of his tariffs, as we argued last week, are a mixed bag. While obviously the steel and aluminum industries will benefit — indeed, companies are already announcing expansion and jobs — industries dependent on steel and aluminum will suffer, jobs will be lost and many products will become more expensive.

But those aren’t Trump’s only considerations. During his televised signing ceremony, he declared, “Today I’m defending America’s national security by placing tariffs on foreign imports of steel and aluminum.” Aside from any real national security concerns, there are two reasons for his focus. First, in order to act without Congress, he must justify it on national security grounds. Were the tariffs only for economic reasons, he’d be stuck waiting. Second, the same justification avoids World Trade Organization sanctions.

From a strategic perspective, Trump’s tariffs are 90% “art of the deal” and 10% bluster — a shot over the bow of NAFTA nations as well as China (see North Korea for why that’s true). Trump is a dealmaker first and foremost, and he arguably knows more about business than any previous president in history — and most definitely more than many of the talkingheads churning the news-cycle rant loop about tariffs. He’s using that knowledge for the purposes of foreign policy.

As for all the Republican blowback, it’s largely about necessary political cover in an election year. The targeted tariffs play well with Trump’s America First blue-collar base across the nation (formerly the Democrats’ base), and particularly in a few hard-hit industrial states.

Unfortunately, as we noted Wednesday, EU officials have shrewdly targeted Harley Davidson, based in House Speaker Paul Ryan’s home state of Wisconsin, bourbon made in Senate Majority Leader Mitch McConnell’s home state of Kentucky, and orange juice from Florida, the perennial swing state. That punishes Trump’s allies and voters.

At the same time, the U.S. economy is an enormous chunk of the world economy and most of our trade partner beneficiaries will tread carefully in terms of retaliation. On balance, we’d say tariffs are a net drag on the economy, as the vehement opposition signifies, but Trump has an uncanny way of turning this kind of chaos to his advantage.

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