U.S. under Trump Series: Trump explains why he doesn’t fear trade wars

President Trump spooked investors, business leaders, and political leaders all across the globe by his announcement last week that his administration is very much likely to follow through Commerce Secretary Wilbur Ross’s recommendation and impose 25 percent tariff on Steel imports to the United States and 10 percent tariffs on Aluminum imports.

It is just as the Commerce Secretary Wilbur Ross said that the President’s announcements shouldn’t have come as a surprise, especially since he has been very critical of U.S. trade agreements over the past few decades since his campaign days and despite all the protests even from allies, are not likely to deter him.

In February, the U.S. Commerce Department, in consultation with the White House released the reports and recommendations presented to President Trump by the Commerce Secretary Wilbur Ross earlier this year. The reports reveal harsh trade recommendation made by Secretary Ross. The reports were created in response to President Trump’s request to review whether excess imports of metal hurt U.S. national security.

Here are the key points from the Steel report,

• World steelmaking capacity is 2.4 billion metric tons, up 127 percent from 2000, while steel demand grew at a slower rate. The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption.
• The reports point to China as the largest producer and exporter of steel and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.
• On an average month, China produces nearly as much steel as the U.S. does in a year. For certain types of steel, such as for electrical transformers, only one U.S. producer remains.
• As of February 15, 2018, the U.S. had 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.
   

Secretary Ross has three alternate recommendations to curb on Steel imports,

• A global tariff of at least 24 percent on all steel imports from all countries, or
• A tariff of at least 53 percent on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota byproduct on steel imports from all other countries equal to 100 percent of their 2017 exports to the United States, or
• A quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the United States.

Mr. Ross’s recommendation for Aluminum was equally strict,

• A tariff of at least 7.7% on all aluminum exports from all countries, or
• A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela, and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
• A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

Why is Trump unafraid of any trade war that might get triggered by his hefty tariffs?

The answer is a relatively simple enough. Large U.S. trade deficit. After his inauguration to the White House, A reporter asked if he isn’t afraid of any ill repercussions from his strict trade decision and he said as long as the U.S. runs a trade deficit, he is unafraid. He shared the very same idea when defending his metal announcements on Twitter,

On March 2nd he tweeted,

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

and followed up tweeting,

“When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!”

On March 3rd, he defended his decision saying,

“The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!”

To counter the European Union’s threat of trade war he tweeted,

“If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

And just a few hours ago, he tweeted again, saying,

“We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!”

All of the above clearly suggests that big deficit is the primary reason for his defiant stance and he is very much likely to follow through his tariff plans and moreover, he also announced that his administration might impose reciprocal taxes.