Trump’s steel tariffs: Why is the US introducing the levies and will they spark a trade war?

Countries most affected could retaliate and introduce own tariffs

Donald Trump has unveiled plans to slap tariffs on steel and aluminium brought into the US. The move has spooked investors and sparked fresh fears of a global trade war.

But why is he doing it? What impact is it expected to have and how might other countries react?

What exactly has Donald Trump done?

At a meeting of US metal industry representatives on Thursday, the US president indicated that from next week, steel imports would face a 25 per cent levy while aluminium will be marked up by 10 per cent.

There are still plenty of questions about the tariffs. It’s unclear whether certain countries will be exempt from the new rules. But the general expectation is that the move will have a huge impact on scores of companies across various sectors that rely on imports to make everything from cars, to machinery, to food packaging.

The move follows a decision in January by the US to impose tariffs of up to 50 per cent on imports of washing machines and solar panels from China and South Korea.

And the US commerce secretary Wilbur Ross told the World Economic Forum earlier this year that the US was “coming to the ramparts” to protect itself, in what he said was an already raging global trade war.

Why is he doing it?

China is a massive producer of steel and aluminium and that has for some time been heaping pressure on US rivals. Almost a year ago Mr Trump directed the Commerce Department to investigate whether imported steel and aluminium posed a threat to national security. Last month, the department concluded that tariffs and quotas were justified.

Among its recommendations were across-the-board tariffs of 24 per cent on steel and 7.7 per cent on aluminium. But Mr Trump said that he wants even higher tariffs.

By announcing the tariffs, the president took advantage of the little-used Section 232 of the Trade Expansion Act of 1962. That act authorises the head of state to restrict imports and impose unlimited tariffs on national security grounds.

Since the US joined the World Trade Organisation in 1995, it has reportedly pursued only two such investigations.

So what will these tariffs achieve?

In short, US steel and aluminium producers would be expected to be able to benefit from higher prices that are likely to result from the levy.

“You will have protection for the first time in a long while, and you’re going to regrow your industries,” the President is understood to have told US aluminium and steel company executives this week.

On the other hand, companies that buy steel and aluminium will have fewer choices and will most likely face higher costs.

“Tariffs on steel and aluminium are a tax hike the American people don’t need and can’t afford,” said Utah Republican Orrin Hatch, chairman of the Senate Finance Committee, according to the Associated Press. “I encourage the president to carefully consider all of the implications of raising the cost of steel and aluminium on American manufacturers and consumers.”

It’s likely that there would be a trickle-down effect that could even hit consumers as US companies that use steel would likely have to raise their prices.

The American International Automobile Dealers Association has already said that it fears tariffs would send car prices up “substantially”.

Generally, it seems that investors are already scared that the move could chip away at corporate profits – across a whole slew of sectors. Stocks fell widely in the aftermath of the announcement.

Is this likely to spark a global trade war?

That’s the big question. There’s a good chance that those countries particularly affected by the tariffs will launch a complaint with the WTO.

Jean-Claude Juncker, president of the European Commission, has already described the levies as “a blatant intervention to protect US domestic industry”.

The WTO is famously quite hesitant to pass judgments about member countries’ security requirements. So it’s far from certain that it will do anything about the complaints.

The countries could of course retaliate and introduce their own sanctions though.

In fact, China has already indicated that it might fight back by introducing tariffs on imports of American agricultural produce to China, such as soybeans.

Richard Warren, head of policy at trade association UK Steel, has said that there is still a lingering hope that these tariffs may not target the UK and EU. If the UK is affected, though, “these measures would seriously undermine our ability to compete in this market”, he said.

Additional reporting by newswires