Insights into Editorial: Rolling back free trade?
US President imposed heavy tariffs on imported steel and aluminium to boost the US industry. He said, US industry has been suffering from “unfair” business practices and this move has sparked fears of a global trade war.
The president said he would exempt Canada and Mexico as “a special case” while negotiating for changes to the North American Free Trade Agreement.
The European Union has responded by warning that it will retaliate with tariffs on a range of US imports.
Why are these tariffs global in nature?
A 25% duty on steel and 10% on aluminium imports is imposed for an unspecified period. US President’s America First agenda, would mainly impact traditional allies of the United States.
Unlike the punitive tariffs that the United States imposes on “dumped” or unfairly subsidised goods from specified countries, these steel and aluminium measures would apply to all countries.
They are “safeguard” tariffs. The aim of these measures is to stop a sudden, unforeseen and damaging import surge that could seriously damage a particular industry.
What is the impact of new tariffs?
The E.U. is the top trading partner of the United States in goods, and it is the top U.S. export market.
Unfortunately, it could once again revive protectionist sentiment which has been on the wane following the recovery from the global economic meltdown.
As a result, US’s traditional allies, who will be hit the most from the tariffs, have warned of bilateral retaliation on a range of US imports including peanut butter, cranberries and orange juice.
Why is this measure hard to challenge quickly?
In justifying the measure, the administration invoked a national security law, departing from an international consensus not to impose trade barriers.
Countries are allowed to this kind of recourse under the General Agreement on Tariffs and Trade in times of war and other emergencies.
Safeguard tariffs are legal under World Trade Organization (WTO) rules, but the checks and balances on them are weak.
If the complainants go to the WTO and litigate, they may lose their right to compensation and simply open up years of legal battling.
A tit-for-tat trade war may begin, as they impose unsanctioned measures to even up the score.
The same thing can be seen in European Union’s response which warned that it will retaliate with tariffs on a range of US imports.
What is the collateral damage?
Although apparently intended to help US steel and aluminium makers, the tariffs could lower profits for companies as well as increasing prices for consumers.
In U.S., the latest levy is expected to put at risk millions of manufacturing jobs that rely on these metals.
American steel and aluminium manufacturers will get a boost, but it’s not clear that they actually have the capacity to meet a huge surge in demand.
Conversely, it is unlikely to create significant new employment in these two sectors.
Many trade economists say Trump’s zero-sum, “mercantilist” view of trade is misguided and that he is wrong to think trade deficits are always bad.
In addition to it, Republicans opposed to President’s approach worry that the hefty tariffs could undermine recent tax initiatives to lure investment.
What are other countries saying?
A trade war triggered by safeguard tariffs would open a new wound in the global trading system.
China has warned that it would have a “huge impact” on the global trading order.
Australia’s trade minister said that the imposition of a tariff like this will do nothing other than distort trade, and ultimately will lead to a loss of jobs.
These measures severely damage multilateral trade mechanisms represented by the World Trade Organization and will surely have huge impact on normal international trade order.