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An interior image of an ArcelorMittal plant in Germany.

Trump’s Passion for Tariffs Faces Stiff Headwinds from GOP

Feb. 14, 2018
Twice this week Trump has raised the idea of trade penalties he calls a ‘reciprocal tax,’ only to have White House officials insist there’s no plan in the works for such an action.

President Donald Trump’s zeal for new a round of tariffs is running into cold, hard economic and political reality: lawmakers from his own party who think it’s a bad idea.

Twice this week Trump has raised the idea of trade penalties he calls a “reciprocal tax,” only to have White House officials insist there’s no plan in the works for such an action. During a televised meeting at the White House on Tuesday, Republican lawmakers told Trump the new tariffs he’s mulling for aluminum and steel imports would likely do more harm than good, costing greater jobs among automakers and manufacturers than they protect.

Penalties raising the cost of aluminum and steel imports alone could reverberate through the economy, hiking up prices for everything from aircraft to electrical wiring and beer cans.

The prospect of a trade war with other major economies could further rattle financial markets already unsteady over concerns about inflation and interest-rate increases. Trump has had to balance those realities with his own protectionist campaign rhetoric and calls from his political base for action that matches it.

“We have countries that are taking advantage of us. They’re charging us massive tariffs for us to sell our product into those countries. And when they sell to us, zero,” Trump said during the meeting in the Cabinet room. “We’re like the stupid people, and I don’t like to have that anymore.”

Special Election Looms

Trump has been making similar comments since his days on the campaign trail and throughout much of his time in office, frequently singling out countries such as China, South Korea, Mexico and Canada. 

He may face fresh political pressure to act as a special election approaches in a Pittsburgh-area congressional district where Trump’s protectionist, pro-manufacturing messaging from the campaign trail boosted him to victory in Pennsylvania in 2016.

But his talk has been bolder than his actions so far. He promised during the campaign to declare China a currency manipulator on “Day One,” but never has. He threatened to impose tariffs on companies that send jobs overseas and then ship their products back into country, but has not done so. He flirted last April with announcing a U.S. withdrawal from NAFTA, and then backed down.

Cautious Lawmakers

At least seven Republican lawmakers at the White House meeting Tuesday urged Trump to be cautious about taking any action that could set off a trade war with China or other countries. Several warned that Trump’s proposals would raise prices for manufacturers dependent on those materials — especially car companies — and for consumers.

“I think we do need to be careful here that we don’t start a reciprocal battle on tariffs,” Senator Roy Blunt, a Missouri Republican told Trump.

At the same time, some Democrats from states Trump carried — and the more populist voters who propelled him into office — are pushing for actions that resemble the president’s trade threats.

Trump instructed the Commerce Department last year to probe whether imports of steel and aluminum represent a threat to U.S. national security, under the seldom-used Section 232 of a 1960s trade act. Trump, who has until mid-April to decide on any restrictions, said on Tuesday that he’s considering quotas and tariffs, among other options. The investigations are seen to primarily target China, which the U.S. blames for creating excess capacity and dragging down global prices.

One hurdle the administration faces in its Section 232 deliberation is the chasm between steel and aluminum producers versus the industries that make products from the raw metal. Trump’s push to expedite the investigations last year was met with opposition by aluminum and steel users that said a larger number of jobs would be lost if the U.S. placed tariffs on imports.

The argument is that parts producers of everything from automobiles to aircraft to wiring in homes and office buildings would pay a higher price for metal if they can’t procure material from foreign sources that could cost less. By putting tariffs on imports, it effectively raises the price of imports so that domestic steel and aluminum producers aren’t being undercut.

“The problem with putting quotas or tariff-rate quotas on the upstream products is that the damage is done to the downstream makers,” Kimberly Korbel, executive director of American Wire Producers Association, said by phone. Korbel wrote a letter on behalf of 15 steel-buying associations to Trump on Monday that said they represent about 1 million U.S. jobs. The American Iron and Steel Institute estimates that the steel industry directly employs about 140,000 people.

Higher Beer Prices

Last summer, Molson Coors Brewing Co. warned that consumers may have to pay higher beer prices if Trump imposes duties making it more expensive to procure aluminum. Anheuser-Busch InBev NV and Coca-Cola Co. later were among food and beverage companies and associations that also wrote a letter to the president, urging him to limit any aluminum duties.

Other Republican lawmakers at the meeting in Washington on Tuesday described Trump’s protectionist approach to trade as out-of-date.

“232 is a little like old-fashioned chemotherapy,” House Ways and Means Chairman Kevin Brady, a Texas Republican, told Trump. “It isn’t used as much because it can often do as much damage as good.”

Senator Ron Johnson, a Wisconsin Republican, told the president that the manufacturing economy has shifted in the last 25 years, making his concerns less compelling. “It makes no sense for me to try and bring back high labor-content manufacturing to America,” he said. “We need to do the value-added things.”

Trade Reprisals

Republican Senator Pat Toomey, who represents Pennsylvania — a state with a storied connection to the U.S. steel industry — told Trump the tariffs could “invite retaliation” and would be hard to justify on national security grounds.

Democratic lawmakers provided some of the strongest support at the White House meeting for harsher trade penalties against China and other countries through the 232 process.

“This really is a national security issue,” said Senator Bob Casey, a Pennsylvania Democrat.

The issue may boil over next week when Trump travels to Pennsylvania to stump for a Republican candidate running in a special election in a steel-sensitive district.

Republican candidate Rick Saccone is running in a special election to fill the U.S. House seat vacated by Republican Tim Murphy. While Trump carried Pennsylvania’s 18th congressional district by 20 percentage points in 2016, Democratic candidate Conor Lamb is running a competitive race, according to public polls.

Trump is planning to attend a campaign rally next week near the district and could use the opportunity to push for harsher trade actions.

By Toluse Olorunnipa and Joe Deaux, with assistance from Andrew Mayeda.

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Licensed content from Bloomberg, copyright 2016.

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