On Thursday of last week President Trump stated he would enact a steel and aluminum tariffs plan on imports, specifically referencing taxes on EU automotive imports. The proposed tariffs outline a 25% tax on steel and a 10% tax on aluminum foreign imports. White House representatives have stressed the President’s proposed tariffs will apply to all foreign trade imports, including United States allies like Canada.
U.S. Tariffs on Allies
To date, Canada is the largest exporter to the US of steel. In fact, the United States held the top position as a Canadian steel importer in every category of steel. The US imported 59% of Canada’s total steel exports from 2016. Many fear that although Trump’s steel and aluminum tariff plan may be targeted to balance the immense export of Chinese steel, trade relations with the United States’ closest allies may be negatively affected.
Although no official action has yet been taken, President Trump’s position has remained firm but appears to be open to negotiations. Trump supporters are encouraged that the President is making good on his campaign trail promises to institute tax reforms. Trump’s newest tax idea comes hot on the heels of the “Tax Cuts and Jobs Act of 2017” officially introduced this past November aimed at lowering business taxes and and increasing standard deduction rates among other goals.
However, others are not so happy and fear instigating a trade war with the EU and Canada could have devastating effects on the US economy and stock market. Members of the House and the Cabinet have voiced concern that tariffs could hurt global supply lines, damage alliances, and jeopardize U.S. economic gains.
This past Monday, President Trump created the space for rolling back his tariff plan if more favorable terms toward the United States are proposed by the North American Free Trade Agreement (NAFTA).
Peter Navarro, President Trump’s chief trade advisor, stressed the trade tariffs will be all-inclusive, but there will be exemption procedures in place for individual cases if need be.
It is not clear if President Trump meant a sweeping end to the proposed tariff or if only Canada and Mexico will be negotiated with individually.
Originally, President Trump was considering dismantling NAFTA because he felt the US was being treated unfairly in the agreement compared to our neighbors to the North and South. However, after phone calls and conversations from both Canadian Prime Minister Justin Tredeau and Mexican President Enrique Peña Nieto, President Trump reconsidered and agreed to renegotiations.
NAFTA was designed to reduce taxes on imported good in an effort to reduce cost to consumers and therefore, increasing trade between the countries. Tariffs were totally eliminated in NAFTA in 2008. Since NAFTA’s creation on January 1, 1994, American trade with Canada and Mexico has tripled, significantly increasing the U.S. trade deficit.
Dismantling NAFTA and imposing tariffs could potentially be detrimental to the Canadian economy which ships 75% of all their exports to the United States. Some have seen Trump’s threat to pull out of NAFTA as a strong arm move to pressure both Canada and Mexico. Negotiations within NAFTA have been rigid since Trump’s campaign trail where he called it a horrible deal for America and has previously considered dismantling NAFTA after talks broke down with Mexican President Nieto regarding payment of building a boarder wall between Mexico and the United States.
Pres. Trump Tariff Plan
The Commerce Department has stated “threats to national security” as the main motive behind the controversial tariffs. Trump has stated numerous times that unequal trade between the US and other countries is devastating to the American economy. By citing national security threats, the President has the authority to move ahead more quickly to impose taxes.
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!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
A March 2nd tweet by the President called for “reciprocal taxes”, where imports in the US will be taxed the same rate as US exports abroad. Navarro stated he expected an official tariff announcement to be made this week or next week at the latest.
Some argue that placing taxes on aluminum and steel will hurt American manufacturing and businesses, causing them to pay more to manufacture their products. If material costs increase, than businesses will also need to increase product cost as well.
With many predicting Trump’s import tariff will be strongly challenged by the World Trade Organization (W.T.O.), it’s no surprise Washington, D.C. is yet against split in their support. The rules of the W.T.O. mandate that trade between all countries remains equal and Trump possibly negotiating individual trade and tax deals with Mexico or Canada, as part of NAFTA, would violate the W.T.O policies.
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!
— Donald J. Trump (@realDonaldTrump) March 3, 2018
As stated before, President Trump threatened to impose a tax on EU car imports into the US through a Tweet on March 3rd if a new trade agreement was not reached. The EU retaliated with a statement from European Commission President Jean-Claude Juncker stating American exports such as Harley Davidson motorcycles (Wisconsin), Kentucky bourbon, and Levi’s jeans (California) would be potential targets for European taxes. 2/3 of these products originate in Republican leader states. House Speaker Paul Ryan’s home state is Wisconsin and Senate Majority Leader Mitch McConnell home state is Kentucky. House Minority Leader Nacy Pelosi’s home district is San Fransico, CA.
Right now, talk about imposing new, higher tariffs is just that, talk. But, not for long. Until a final decision is made and action is taken to either enact or discard Trump’s proposed tariffs, the world is holding it’s breath and can only speculate at what the consequences will be.