"This is just the beginning of making America rich again", said Donald Trump when announcing his decision to impose a 25% tariff on steel and aluminum imports into the US. The decree that Trump signed will take effect in March and will apply to the raw materials in question imported from all countries.
"Tariffs mean big losses for everyone"
However, many economists seriously doubt that the tariffs will lead to a new “golden age“ for the US. "The research on the subject is consistent," says Abigail Hall-Blanco, an economist at the University of Tampa. "Tariffs are a big loss for all countries." Trump wants to protect domestic steel and aluminum production by imposing them. Experts warn that for American industry - especially for industries heavily dependent on metals such as auto manufacturing and construction - the costs will increase.
These costs will almost certainly affect final prices for US consumers, which will increase inflation, as Trump tries to reduce it. "And low-income people - more of whom voted for the Republican - will suffer the most from the tariffs," says Meredith Crowley, a professor at Cambridge. “If the price of a car goes up by $1,000, some families simply won’t be able to afford a car.“
The U.S. steel and aluminum industries have structural problems that are making them less competitive. These include high production costs, aging infrastructure, and limited capacity. China’s dominance has also led to excess inventory. Asia’s largest economy produces more than 50 percent of the world’s steel and 60 percent of its aluminum, and prices are often subsidized by the Chinese government. “In the United States, we often import steel from countries like China. Why? Because it's cheaper than shipping steel from the East to the West Coast of the US,“ explains economist Hall-Blanco.
The experience of Trump's first term is not good
Even during his first term, Trump introduced tariffs on steel and aluminum, but according to Federal Reserve data, the number of people employed in manufacturing has nevertheless decreased since 2019 - by 2.6%, which in absolute terms means that 320,000 jobs have been lost. According to the study, the more an industry is hit by tariffs - for example, through more expensive inputs or retaliatory measures - the greater the job losses.
During Trump's first term, the trade war cost the US about half a percent of GDP, and the real income of the average American household fell by $675, according to Oxford Economics calculations from 2021.
Economist Crowley compares the situation to 2001, when US tariffs on steel led to the loss of tens of thousands of jobs: “American car manufacturers had to cut jobs because they couldn't produce enough cars due to a shortage of imported steel. Then the then US President George W. Bush began to lift the tariffs again, the expert recalls.
Countermeasures from Canada and Europe
Canadian Prime Minister Justin Trudeau described the tariffs as “completely unjustified“ and said that his country would “respond decisively and categorically“. Ottawa is the largest importer of steel and aluminum in the US with 6.6 and 3.2 million tons respectively last year.
According to data from the consulting firm “Roland Berger“, about 25% of European steel exports are to the US, including from Germany, the Netherlands, Romania, Italy and Spain. However, ThyssenKrupp, Germany's largest steelmaker, has maintained its composure.
“Thyssenkrupp's main market for steel is Europe. Exports of steel products to the United States are negligible,“ a company spokesman said. The European Union has threatened countermeasures, however. European Commission President Ursula von der Leyen said Brussels would respond with “strong, proportionate countermeasures“.
A number of countries hope for exemptions
Trump could also score a “political victory” if he uses his threats to persuade the EU to reduce tariffs on American cars, which are currently higher, according to Meredith Crowley. “Trump is looking for industry-related deals - so he can then look like he has opened up markets for American products,“ Crowley said.
Some countries, however, are hoping for an exemption. Australia has already called for one. Trump said he would “consider” Australia’s request because it has a trade deficit with the United States. The British government also hopes to exempt the country from the tariffs. Indian Prime Minister Narendra Modi, who will visit Trump at the White House this week, has already cut Indian tariffs on dozens of imported goods and is reportedly preparing further cuts to appease Washington.
Ukraine is also hoping to bypass the tariffs by tapping its reserves of rare earth metals, which American technology companies need to make electric cars. Last year, about 58% of Ukrainian metal exports went to the United States, worth about $500 million. Experts recall that similar exceptions occurred during Trump's previous term - for example, for Argentina, Brazil and Australia in 2018.
Author: Nicholas Martin