Yesterday, President Trump imposed steep tariffs on steel and aluminum imported from three of America’s biggest trading partners – Canada, Mexico and the European Union, ending the exemptions granted to them in March when the Administration announced tariffs of 25% on all imported steel and 10% on all imported aluminum.
Mexico, Canada and the European Union immediately announced plans to retaliate with their own tariffs against American products.
We were negotiating with Canada, Mexico and the European Union for a more reasonable trade agreement, but the President set a deadline of Friday, so Trump pulled the plug.
Commerce Secretary Wilbur Ross said the imposed steel and aluminum penalties fall under a 1962 law that gives the President broad power to increase or reduce tariffs on goods deemed critical to national security.
Yeah…steel is certainly critical to almost everything in our society, including security, but the present trade relationships and prices pose no threat to security. In fact, these new tariffs themselves pose a greater threat to our security since the hit to our economy has already been negative and trade instability is really bad for business.
Not to mention it hurts our allies.
The effects on our economy will generally be bad. U.S. Steel climbed 3%, but the Dow fell about 200 points on the fears of a sustained trade war. Which is why Republicans on Capitol Hill are fuming. Senator Ben Sasse (R-NE) said ‘This is dumb’. Congressman Kevin Brady (R-TX) added, ‘These tariffs are hitting the wrong target.’ Senator Mike Lee (R-UT) and Senator Pat Toomey (R-PA) are sponsoring a Bill ‘to reign in the executive branch’s power to impose unilateral tax increases like these.’
Moreover, aluminum and steel are the two most important metals in modern society. And we import more steel and aluminum from Canada, our closest ally in history, than from anyone else. The next three biggest suppliers are also allies – Brazil, South Korea and Mexico. China, the original target of Trump’s ire, only supplies 3% of our steel.
Mexico said it will retaliate with similar penalties on American lamps, pork, fruit, cheese and flat steel. Canada announced that tariffs on $12.8 billion in U.S. exports will start in July. Europe set retaliatory tariffs – 25% on American products such as motorcycles, denim, cigarettes, peanut butter, whiskey, orange and cranberry juice.
This seemingly random list of products is not so random. They are targeted to hit Trump’s base in states like Wisconsin and Kentucky, the home states of the Republican leadership including House Speaker Paul Ryan and Senate Majority Leader Mitch McConnel.
Steel production in the United States is just over 80 million tons a year, down from our peak of over 100 million about ten years ago. Domestic aluminum production has dropped to about a third, with three-quarters of our aluminum smelters closing since the peak.
During this time, foreign producers have increased production dramatically, doubling since 2000. Global steel production is now at an historic high of 1.6 billion tons a year. This has deflated prices in the United States, lost us thousands of jobs, and increased American imports. We now import about four times as much steel as we produce.
But these low prices have led to a surge in production of things like cars, airplanes and pipelines, which have produced many more jobs than have been lost in metals production. In fact, these tariffs would lose ten times as many jobs in America as they would add.
The Administration keeps arguing national security – reliance on imports leaves us vulnerable to embargoes by our enemies. But most of our imports are from allies – over half of our aluminum comes from Canada alone.
Although this Administration seems actively trying to insult our allies, it is still unlikely Canada or Mexico would stop sending us steel and aluminum during national emergencies.
Many analyses have estimated the negative effects of these tariffs on specific industries like construction. About 17 million Americans work in industries dependent on steel.
But what about the energy industry? Electricity production is heavily dependent on materials like steel, concrete, copper and aluminum, for both producing electricity and moving it around to where it’s needed (see figure).
Solar and Wind energy take more steel than any other energy source. Natural gas and nuclear take the least. Solar needs 1,600 tons of steel per MW, wind energy needs over 400 tons of steel, while gas and nuclear need only 4 and 40 tons, respectively.
Wind and solar also require ten times more transmission, also heavily steel-intensive, since they are usually sited far away from where the energy is used. The average high-voltage transmission tower includes about 30 tons of steel and transmission wire contains about a ton of steel per mile. Going from our biggest solar array, located in the Mohave Desert, to Los Angeles is almost 300 miles, requiring on the order of 10,000 tons of steel depending on specific design.
While we tend to think of renewables as associated with Blue States, they are actually growing faster in Red States. Four of the five states with the most installed wind energy are Texas (20,321 MW), Iowa (6,917 MW), Oklahoma (6,645 MW) and Kansas (4,451 MW). The only Blue State in the top five is California (5,662 MW).
Whatever the reason for President Trump’s focus on tariffs, whether it’s a campaign promise, a close advisor’s pet peeve, or just outright ignorance, imposing foolish tariffs will hurt both Trump’s America and everyone else as well.