Trade and tribulation: What does a trade tariff on steel mean for the US and the rest of the world?


Trump argues in the interest of national security, and in an attempt to restore and secure manufacturing jobs in the US, it’s time he flexed his anti-trade muscles and slapped a 25 per cent tariff on steel and a 10 per cent tariff on aluminium.


Watershed events, such as the 2016 US election and the United Kingdom during the Brexit referendum tells us that there’s an increasing trend geared against free trade from countries with advanced capitalist economies. The last half-century has seen a massive shift of wealth from ‘ordinary’ people in the US and UK to elites as a result of free trade.

The shift from industrial production to manufacturing goods and services in industrialised countries has contributed to the social and economic decline that comes with global free trade agreements. The extensive gap between rich and poor countries has demonstrated an inability to re-order trade agreements that extradite people from poverty demonstrating the shortcomings of current economic orthodoxies.

In line with his “Make America Great Again” mantra, Trump has backed the steel industry to funnel manufacturing back into the US.

And he’s done so for a very good reason.

Steel production is heavily concentrated in industrialised places like Ohio and Pennsylvania as well as old Mid-West states. More crucially, these were cited as swing states in the 2016 presidential election, giving the vested interests of those industries a huge boost in the sphere of influence- as well as keeping very powerful political lobbyists happy in their states.

However, the steel industry isn’t what it used to be. In the 1950’s, the sector supported as many as 650,000 American workers, now it employs as little as 140,000.

The manufacturing sector in the US which has suffered significantly was a key focus for Trump during the 2016 Presidential election.


Why did Trump up the ante on trade?

Early on in his campaign, Trump identified a key constituency of the US election as white working class people. He promised to renegotiate trade deals and bring back domestic manufacturing jobs in Rust Belt states, blaming immigrants and foreign nations for stealing US jobs, which fueled widespread resentment and racism.

Aware of anti-trade angst amongst voters, Bernie Sanders and Donald Trump stuck out in the 2016 US election because they advocated as candidates who spoke to every-day, “working class” American people, a group of voters left behind by party elites. Both candidates opposed current and past international trade agreements, such as the North Atlantic Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TTP) to align themselves with Rust Belt voters. Working class symbolism was a pivotal election tactic Clinton cashed in on too late.

Rust Belt voters believed GOP establishment politicians had ignored their concerns, and gave rise to Trump’s success, as he used their anger to pin blame on immigration and dodgy international trade pacts that were selling out workers and weakening America.

Trump tapped into nationalist populism which stemmed from decades of rising inequality. Economic uncertainty played a major role in Trump flipping Rust Belt states, which Hilary Clinton fatally ignored during the election. Trump had a discontent, fractured electorate at his mercy during the campaign with key Rust Belt states of Wisconsin, Pennsylvania, and Michigan who had traditionally voted Democrat for generations, throwing their support behind a Republican candidate for the first time.

Exit polls at the time showed sweeping cultural divides as well as a deep gender, racial, and economic split that drove his success in Rust Belt states. The economic populist dictum that won Trump the election relied heavily on his promise to bring back factory jobs to the Rust Belt states.


In 2002, George W. Bush imposed a similar steel tariff to front the growing anxieties from domestic producers being hung out to dry by offshore production. But despite supporting the steel industry, the tariffs stifled the auto industry and incited an immense backlash.

The World Trade Organisation slapped down the Bush tariff, 21 months later, arguing the surge in steel imports didn’t justify the tariffs.

Trump has backed his claims that imposing his tariff on the grounds of national security is a legitimate concern despite the issue of other countries may retaliate and implement their own tariffs.

The WTO Chief has threatened Trump this time around of toeing the lines of a trade war, with protectionism as a key driver of the first trade war in the 1930’s.

A chief global economist at Capital Economics said the risk of retaliation from other countries in response to Trump’s national security excuse was a real risk factor.

“The real worry is that this marks a turning point in US trade policy, away from bluster and brinkmanship towards actual protectionist measures.

“We have consistently warned that this would become more likely as the mid-term and presidential elections approach. If so, President Trump may discover that there are rarely any winners from trade wars.”


Trump hinted that no such tariff would extend towards Australia, however even if one does go through Australia’s won’t be hugely affected.

Australia, not a primary exporter of steel or aluminum is also safe under our free trade agreement with the US.

However, if the tariff extends supplies such as meat, which is an export of high volume for Australia, then we could be in a bit of trouble.



Image Source: The Conversation


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