The U.S. has announced the application of across-the-board import tariffs on steel and aluminum to protect national security. The tariffs – 25 percent on steel and 10 percent on aluminum have started making waves and may set out to rock murky waters among the steel and aluminum industry in the global market.
Be as it may that the U.S. plans on tackling China over what is argued as the country’s overproduction of steel, Hiroshige Seko, Japan’s minister of trades and industry was reported by Reuters as having said that the measures “could disrupt the steel and aluminum markets of the world and have a negative impact.”
Countries will expectedly put up counter and retaliatory measures especially if they fail to secure carve-outs. The whole stuff will eventually transcend the steel and aluminum industry and will snowball. It will turn into an ill wind that will blow nobody any good.
One thing any government strives to achieve is to ensure that its citizens are employed. The U.S.has made a very strong case for the fact that the liberal policy on the importation of steel and aluminum is responsible for the unhealthy competition being experienced by the home companies with the attendant dips, idling of rolling mills, and job cuts.
Multiple academic studies in the 1980s, however, showed that efforts to restrict imports of various steel products annually cost American consumers between $200,000 and $2.3 million for every U.S. steel industry job protected.
What could be the possible backlashes of these new tariffs?
The Council on Foreign Relations reports that roughly 140,000 people are employed directly in the steel industry in the U.S. today, this is a far cry from 650,000 workers employed by the industry in the 1950s. While this may form a basis for the new tariffs, it is very important we look at other steel-based sectors that will be affected inadvertently by the policy.
One thing the tariffs will do is to raise the cost of steel and aluminum. This will in turn hurt industries such as automakers, aircraft manufacturers, the energy industry, and the construction sector among others who have about 6.5 million people in their employ and depend majorly on steel and aluminum.
The multiplier effect sets in. companies will attempt to cut costs by either thinning down the workforce, going into temporary limbo or outright closure. Thousands of jobs will be at risks over the tariffs that were not targeted at their companies.
Since the tariffs are actually targeted at the importation of steel, countries like Brazil, Canada, Germany, Japan, South Korea, and Mexico who incidentally are allies of the U.S. and among the top 10 exporters of steel to the United States, will be hit squarely. Their economies will be roundly affected and a lot of their workforce will be laid off.
In retaliation, these countries may decide to impose stiff tariffs on other non-steel related goods they import from the U.S., China, for instance, is reported to be investigating U.S. imports of sorghum and studying whether to restrict shipments of U.S. soybeans, both of which are completely unrelated to steel. The EU has also had discussions on possible targets for retaliation and bourbon from Kentucky and dairy from Wisconsin are among the targets.
Since it may not be easy to place tariffs on only goods that are coming in from the U.S., countries that have nothing to do with steel and aluminum but who may probably be exporting any good that is targeted will be affected and the workforce will be hit in turn. It will be expected that developing countries will bear the brunt greatly.
Possible impact on World Trade Organization (WTO)
The WTO in a bid to harmonize trade among members has the General Agreement on Tariffs and Trade (GATT) and the WTO Agreement on Safeguards. The body, however, has the WTO exemptions for national security (GATT Article XX1) which the U.S. seems to have invoked.
Pointers are that the U.S. may win any legal tussle that may ensue from member countries should they decide to contest the tariffs imposed on steel and aluminum. This will definitely open the door to other countries who will decide to harp on this loophole to escalate protectionism in global trades.
In order to avoid such a scenario, it will be in the best interest of member countries to jointly work together in an effort to curtail overproduction which is the actual reason for the glut experienced in the steel industry and the subsequent job cuts that countries are eager to avoid.