US-American President Trump imposed tariffs on steel for several different countries in early 2018. This is a decision that comes with many consequences for all involved parties. During the presidential elections in 2016, Trump promised to save manufacturing jobs in the US once he gets elected, and it is controversial whether tariffs are the right actions to be taken. This academic mini-paper will provide information about the economics behind new import tariffs of Chinese and European / South Korean steel.
The first part of the mini-paper will give an overview about the current situation including major developments that happened since steel tariffs were applied. The second part is covering each affected country independently, whereas the paper focuses mainly on the situation with China and Europe. The economic consequences of president Trump’s actions for each of the countries as well as for the United States itself will be illustrated. The third part of the mini-paper is going to highlight arguments that are supporting, as well as arguments that are opposing the idea of using tariffs to save manufacturing jobs in the US.
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Next to a summary of the main aspects of the mini-paper, the last part is talking about future scenarios for all involved countries. It is obvious that China, Europe and South Korea feel punished by the actions which the United States has taken previously. As a way of taking revenge they might (be continuing to) conduct retaliation measures which could hurt the United States severely.
US-President Trump thinks that America has been worse off in terms of relations with other countries. He thinks that relations need to be improved, and contracts need to be renegotiated. As a concrete action, he is talking about imposing quotas or tariffs on various products that are imported to the United States. That’s why in January 2018 he announced to impose a 25%-import tariff on imported steel for many countries. When the tariffs got imposed in March 2018, Europe was not one of the affected continents. However, this changed in June, and Europe got involved as well. Trump is justifying the tariffs by saying that the national security of the United States is not guaranteed so far.
The following part of the Mini-Paper will illustrate details about the situation between the United States and each of the aforementioned countries.
Trump sees China as Americas biggest enemy. According to him, America got treated unfairly by China previously. He claims that the Chinese stole American technology. That’s why Trumps wants to fight back, and he sees a way in doing so by imposing import tariffs on steel.
Although still developing China can be considered a powerful country. They can produce and sell / export a lot of steel at very cheap prices. The problem here is that this is possible because the Chinese government is providing money in the form on subsidies for Chinese steel. Trump is imposing tariffs, which is hurting China. But the original problem, which is an exceed of subsidized Chinese steel, cannot be solved his way. Tariffs can only be considered as a pressure to have the Chinese government to decrease subsidies for their steel production.
Even if only a small amount of the United States’ steel is coming from China, it has a big impact: Soon after the tariffs got imposed, imports decreased by more than 10 percent. Without doubt, Trump’s major goal is to damage China, but the tariffs got imposed on European steel as well which will be discussed in detail in the following part of the Mini-Paper.
At the beginning, Europe got treated differently than other countries when it comes to the trade tariffs imposed by the United States. In June 2018, the United States imposed a 25%-steel tariff on Europe. This happened three months after Trump first announced to impose steel tariffs on other countries (See chapter 1.1). As a response, the European Union decided to levy tariffs on US-steel. Furthermore, the European Union consulted the World Trade Organization in order to file a complaint against the behavior of the United States.
Europe is already suffering from the imposed tariffs. An example for that is the Riva mill in Brandenburg an der Havel. According to representatives, the mill is expected to cut 40% of its jobs. German chancellor Merkel states that it is better to engage in talking to the United States rather than just retaliating Trump’s actions. The European Union wants to get exempted from the trade tariffs, and so far it seems like President Trump is ready to negotiate about it by demanding the European Union should be obliged to export less steel to the United States in case the tariffs get revoked.
That is relating to Trump’s plan to preserve national interests plan to fight China. Right now, he is imposing tariffs on all western allied countries, even though he knows that they all mostly agree that China isn’t playing fair in today’s times. If Trump can solve that problem, he might be better off versus China in terms of a trade war. The European Commission is agreeing by saying that the current way will rather support China than damaging them in the very end.
The situation regarding imposing steel tariffs on South Korea is different than the ones from China and Europe. As almost any other country, South Korea used to be imposed by the 25%-tariff levied by America as well (see Chapter 1.1). But the difference is that America and South Korea have a bilateral free trade agreement which has been renegotiated. As a result, South Korea got exempted from the steel tariffs. Instead, America and South Korea agreed on an import quota for South Korea of about 2.68 million tons of steel / year. The reason for that is that South Korea is close to China. Trump and the United States are afraid that China uses South Korea as a transit country to deliver its cheap steel to the United States.Controversial discussion for saving jobs
After imposing import tariffs on steel, it’s price for imports are rising which means that in the short run the domestic country (in this discussion the United States) will produce and export more steel. That means more manufacturing jobs will be available in the United States. Trump himself keeps saying that disadvantages are only taking place temporarily, because in the long run, he sees himself able to negotiate agreements in the United States’ favor which will finally lead to a rise of the American steel industry as well as its workers.
George Bush as a former president already did nearly the same thing: He increased the import tariffs on steel. Because of that, 30 us American manufacturers declared bankruptcy and roughly 200,000 people lost their jobs. The way tariffs work is always the same, so it is likely that this situation is happening again.
Steel is the basis for many different goods. Some companies use steel to create their tools to manufacture other goods. That means that much more jobs are involved than one may think at first (see Appendix A). An estimated 146,000 workers are likely to lose their jobs, which is opposing Trump’s strategy to save manufacturing jobs.
Trump’s party, the Republicans, condemned his actions as well. They say that the tariffs come with increasing costs for the companies. These costs are likely to be forwarded to the employees for example by paying them lower wages.
In the future, China and Europe are likely to come up with (more) retaliation measures. Trump threatened the affected countries to increase or impose new tariffs once this is happening. South Korea is the only country discussed in this Mini-Paper that ultimately was able to renegotiate and agree on new trade terms when it comes to shipping steel to the United States (see Chapter 1.4).
Especially as the steel tariffs are affecting more than just the steel sector (see Chapter 2.2), it is still uncertain to what extent the United States will benefit or suffer from it in the end.
Less than a year passed since US-President Trump announced and imposed a steel-tariff on many countries. Even though some local companies were able to create manufacturing jobs as Trump promised originally, it is still unclear what exact effect these tariffs will have on the American economy. As this Mini-Paper shows, there are numerous aspects that are leading to an opposite effect. In order to get an accurate overview about the consequences regarding American steel manufacturers, analyzing the situation between the United States and China, Europe or South Korea is not enough. Additional countries have to be taken into consideration. Future research can be conducted for example on the situation between the United States and India, as India’s actions can have a huge impact on the world’s economy as well.
2. Trump reiterates plans for steel-import curbs — 2nd update. (2017, Jul 13). Dow Jones Institutional News Retrieved from https://uiwtx.idm.oclc.org/login?url=https://search-proquest-com.uiwtx.idm.oclc.org/docview/1918734979?accountid=7139
4. Trump’s steel destruction. (2018, Jun 01). Wall Street Journal Retrieved from https://uiwtx.idm.oclc.org/login?url=https://search-proquest-com.uiwtx.idm.oclc.org/docview/2047940134?accountid=7139
6. Feldstein, M. (2018, Mar 15). The real reason for Trump’s steel and aluminum tariffs. Project Syndicate Retrieved from https://uiwtx.idm.oclc.org/login?url=https://search-proquest-com.uiwtx.idm.oclc.org/docview/2014042852?accountid=7139
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