U.S. vs. the world: Here's what a trade war looks like

U.S. vs. the world: Here's what a trade war looks like

- in Business
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WASHINGTON — President Donald Trump could finalize new tariffs on imported steel and aluminum as soon as Thursday as he looks to make good on years of fiery threats to confront allies and rivals alike on trade policy.

Trump’s plan has unsettled stock markets and scrambled political alliances, with Republican leaders like House Speaker Paul Ryan, R-Wis., criticizing the tariffs and Democrats like Sen. Sherrod Brown, D-Ohio, talking them up. Trump’s top economic adviser, Gary Cohn, who reportedly opposed the tariffs, resigned over the issue.

The large tariffs will impact the American economy and could touch off a trade war, with other countries already threatening to respond in kind. Here’s what you need to know.

What is Trump doing?

While the White House has not officially announced its plan and observers are eagerly awaiting the details, the president has said he intends to impose a tariff of 25 percent on steel imports and 10 percent on aluminum imports.

Trump tweeted Thursday morning about an afternoon meeting at the White House on the issue in which he vowed to protect the steel and aluminum industries while at the same time showing flexibility toward the U.S.’s “real friends.”

The president’s tariff initiative comes after the Commerce Department, led by Secretary Wilbur Ross, released a report declaring that current levels of steel and aluminum imports threatened national security and recommending tariffs and quotas on imports to protect the industries at home. Under Section 232 of the 1962 Trade Expansion Act, the White House can take action to confront such threats, but it’s been invoked only rarely to confront oil crises in the ’70s and ’80s.

Who do tariffs help?

The immediate beneficiaries are likely steel and aluminum companies, which will now be able to sell their product at cheaper prices in the U.S. relative to foreign competitors. U.S. Steel announced it would send 500 idled workers to an Illinois plant in response to Trump’s plan.

The industry has long complained that it’s been undermined by overproduction of steel in China, which the Commerce Department says is “by far” the largest contributor toward 700 million tons of excess steel capacity worldwide. While China represents only a small fraction of steel imports to America, critics say it and other countries distort the global market by subsidizing cheap steel in order to build up their industry at home and muscle out rivals abroad.

“We put those duties in place and we can help industries recover,” Robert Scott, an economist at the Economic Policy Institute who is broadly supportive of the tariffs, told NBC News. “It leads to more investment, it leads to increasing employment.”

Who gets hurt?

Companies that rely on steel and aluminum to make their products, from auto manufacturers to construction firms, will face higher costs that could cause them to raise prices or cut jobs. Beer companies, which use aluminum in their cans, are livid.

Since there are vastly more businesses that use steel and aluminum rather than produce it (the American Iron and Steel Institute estimates there are 140,000 jobs in the industry), most economists expect the tariffs to hurt growth, if only modestly.

But the bigger fear for the economy isn’t the tariffs — it’s what other countries might do in response and whether it leads to a broader trade war.

What’s a ‘trade war’?

Trade is based on reciprocity. Countries agree to lower tariffs together and when one throws up a new barrier, their trading partners have the option to respond in kind. That means the United States could be vulnerable to retaliation if it goes ahead with tariffs, which other countries are likely to challenge as a violation of existing agreements.

The European Union is already weighing its own 25 percent tariffs on $3.5 billion of iconic American products in politically sensitive U.S. states.

“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans, Levis,” European Commission President Jean-Claude Juncker said in a German TV interview.

But Trump’s position is that its tariffs are justified, which means the White House could declare everyone else’s retaliation illegitimate and escalate tariffs further. Trump, who said recently that “trade wars are good” on Twitter, has already threatened Europe with a tax on imported autos in response.

“If it does get out of hand to some degree, where there’s tit-for-tat with a lot of countries, it will have some impact on the economy,” said Claude Barfield, a trade policy scholar at the American Enterprise Institute.

In addition to affecting goods that are hit with tariffs, the uncertainty created by a trade war could spook investors, who worry about fallout. A company might think twice about opening that factory to roll out a new product line for European markets if they are concerned that European countries are about to throw up a bunch of tariffs.

Has it happened before?

There hasn’t been a full-blown, no-holds-barred trade war since after World War II, when countries began opening up their markets and joining international agreements. The free trade movement, led by the United States, was in part a response to the Great Depression, in which economists blamed a global cycle of tariffs for prolonging the downturn.

But there have been plenty of smaller disputes over tariffs and trade barriers, including over steel.




George W. Bush

George W. Bush speaks at a forum sponsored by the George W. Bush Institute in New York on Oct. 19.