Trump's America First Trade Policy Undermined by Tariff Exemptions

President Donald J. Trump

Promises to bring about an America First trade policy to protect and expand creation of new jobs were a primary focus of candidate Donald Trump in the 2016 presidential election. The Trump administration has moved forward with tariffs against foreign producers of steel and aluminum for trade agreement violations. Exceptions to these tariffs, however, threaten to severely undermine their effectiveness.

The exemptions are set to expire on May 1, which leaves open the possibility the Trump Administration could negotiate for stronger tariff protection for American steel production. The Trump administration should not exempt bad actors from new tariffs and hold those nation’s accountable for their overcapacity and illegally subsidized products, because exemptions create market uncertainty. Global markets can adapt to tariffs and the exemptions should be allowed to expire until cheating nations change policies that give them an unfair advantage.

Willem Marx, in a CNBC piece cited Trump’s threats to decertify Iran’s compliance with the Obama-negotiated nuclear agreement as an example of how the administration may address the steel tariff issue going forward. Trump regularly threatens to decertify the Iran deal every six months and that is a powerful tool to modify the actions of Iran. Same could be done with tariffs, but allowing these tariffs to expire would be even more powerful.

American steel and aluminum production has been undermined by imported steel that is heavily and illegally subsidized, and sold in massive quantities at low prices in the United States. China and other nations have subsidized their steel production to ensure saturation of the global marketplace, causing the depression of the production and prices of U.S. steel. In the last four years, more than 85 percent of U.S. steel trade cases have involved countries other than China. The Trump administration should not enable bad actors from engaging in these trade practices by exemptions from tariffs.

The tariff may result in far too meager protection of American steel and aluminum production as a result of the exemptions granted. Within weeks of Trumps announcement of a 25 percent tariff on imported steel and aluminum, representatives of European Union nations began pushing for tariff exemptions, resulting in about two-thirds of the world’s steel production becoming exempt from the tariffs announced by President Trump in March of 2018. Trump believed the tariffs would lead to increased investment and job creation in the American steel industry, but Marx writing for CNBC, suggests the “comparatively minor measure of protection for the domestic production” would not clearly have much of an impact. Exempting too many countries undermines the power of the tariffs.

Implementing the tariffs as Trump announced will ensure support and sustainability of domestic production, which benefits national security, the American manufacturing economy, and the millions of Americans employed by these industries. President Trump needs to ensure that countries cheating in their trades practices are not granted any further exemptions, which will allow the continued flow of cheap steel into the domestic market that erodes American jobs.

Excess global production of steel reached about 737 million metric tons in 2016 and is likely to remain at more than 500 million tons through 2035. With this massive overcapacity, the exemptions will allow the continued flooding of cheap steal on our shores, and lead to further serious threats to the sustainability of the U.S. steel industry.

Tariff exemptions create market uncertainty at a time when stability in trade policy is needed. The administration should stand by the original tariffs announced and allow domestic production and global markets to adapt accordingly. Imports of cheap steel have a direct impact on our national security infrastructure as downstream producers are more likely use to use this cheap foreign steel rather than domestic steel to support national security efforts.

While the Trump administration had acted swiftly levy the 25 percent tariffs to stem the flow of illegally subsidized steel, the exemptions clearly eliminated most of the relief that is needed for domestic steel industry and the communities and families relying on American steel production.

President Trump’s action on tariffs is a welcome remedy to the global issues affecting domestic production of steel and aluminum that will protect these industries that are so important for our national security and creating millions of job for Americans. The exemptions that only undermine this policy should be rejected and the tariffs should be fully implemented.

The bottom line is that global steel overcapacity and surging imports remain a serious threat to the sustainability of the U.S. steel industry and it hurts national security. President Trump’s America First trade policies are moving in the right direction, but the president needs to now double down and let the exemptions expire to prove that he is serious about punishing all the bad actors, not just China.