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Trump steel tariffs: Reinforcing bars, campaign promises, and thinking out loud

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In the middle of the United States, the geographical center of support for Donald Trump, each boatload of steel imported is akin to a reinforcing bar driven through the heart.

IIndeed, Trump’s great attention to industrial areas in Ohio, Michigan, Indiana - Mike Pence’s home state - and Wisconsin - where Hillary Clinton was conspicuously a no-show - are credited with tilting the scales in his favour, leading to a surprise victory in 2016.

During the election campaign, Trump had promised the “rust belt” (battered as all manner of industrial production has moved offshore, particularly to Asia) that he would use the tools of trade restrictions to create a climate for re-growth. So, with his announcement this past week that he would soon be imposing import tariffs on imports of steel (25%), and aluminum (10%), he was keeping one of many campaign promises, albeit the one that, arguably, got him elected.

US Census Dept data shows that: “In 2014, US imports of steel products reached a near record high of 40.3m metric tons, only topped by the 41.3m metric tons imported in 2006.  Import levels fell by 12% in 2015 and by 15% in 2016 to 30m metric tons.” Data for 2017, still not fully compiled, suggested an uptick of around 20% from 2016 numbers, to roughly 36m tons - about one third of the market. Leading sources are Canada, Brazil, South Korea and Mexico.

Financial markets instantly showed their displeasure; stock market indices , which had gained back nearly all their losses, circa 10% from their highs, booked in February- initially prompted by fears of rising interest rates, plummeted again. These markets feared that Trump’s threatened actions, justified with “national security” concerns, and therefore within the bounds of legality, could set off a trade war.

Other nations, friends and foes alike, could retaliate, causing reduced flows of goods and thereby bringing about an economic slowdown. Corporate America, with the exception of steel makers and those closely akin, reacted negatively- many big companies are consumers of steel and other imported raw and semi-raw materials. At this point, all these worries are subjective not based on specific facts, as this story emerges.   

But President Trump, though seemingly boisterous and unscripted, behaves differently from other politicians. Some view last week’s announcement as a test of sentiment- “thinking out loud” to see what reactions ensue (which anti-Trumpers would label as “changing his mind”).

If the tariffs move forward in the coming weeks, it is possible that specified trading partners and close allies could be exempted. Political analysts have suggested that flows from China, actually far down on the list of steel suppliers to the US not even in the “Top 10”, are in the crosshairs.

Trade analysts have suggested that, if the China thesis is correct, that agricultural exports, a commodity moving in seaborne bulk trades, could be vulnerable to retaliation. In 2016, 33m tons of soybeans were exported from the US to China, with 2017 data, from the US Department of Agriculture showing US exports of approximately 27m tons (with Brazil picking up the slack). Shipments are split between origins on the lower Mississippi River, and the Pacific Northwest.

Good to read: https://www.trade.gov/steel/countries/pdfs/imports-us.pdf