Skip to main content

Trump’s Steel Tariffs Could Seal NAFTA’s Death and Set Trade Wars in Motion

Trade wars appear to be brewing with more than one of the United States’ major trade partners, but President Trump seems unfazed by the fact.

In fact, Trump said on Twitter Friday, defending his recent proposal to put tariffs on steel and aluminum imports, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

It may not, actually, be as easy as the president believes, as the effort, seemingly designed to target China, could also hurt Canada—which is the biggest supplier of steel and aluminum to the United States—should the president decide they must pay the tariffs too. Looking at the 10 top sources of steel for the United States, Canada tops the list providing 16 percent of U.S. steel imports, followed by Brazil, South Korea and Mexico. China, though the target, doesn’t even make the top 10.

Even so, China responded to the tariff proposal, with Foreign Ministry spokeswoman Hua Chunying saying, “China urges the United States to show restraint in using protective trade measures, respect multilateral trade rules, and make a positive contribution to international trade order.”

The sudden pronouncement of the tariffs—25 percent on foreign steel imports and 10 percent on aluminum—this week served to stymie already strained North American Free Trade Agreement talks currently ongoing in Mexico City, and experts are warning the trade deal’s days are looking increasingly numbered.

Canada’s foreign minister Chrystia Freeland said within hours of Trump’s tariff announcement that Canada would consider any trade restrictions on its U.S.-bound steel as “absolutely unacceptable.”

Related Stories

Adding to that, she said, “It is entirely inappropriate to view any trade with Canada as a national security threat to the United States….Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”

The back and forth between Trump and Mexican President Enrique Peña Nieto over the border wall, with Mexico promising never to pay for it and Trump saying it will, worsened during a fallout over the wall last week, which itself won’t serve to push the renegotiations easily along.

What’s more, tensions and provocations aside, the biggest issues stalling progress in the NAFTA trade deal—namely rules of origin and the proposed sunset clause that would see the agreement expire in five years—still remain. Though the hope was to conclude the talks by early April, that’s looking less and less likely.

If you ask Goldman Sachs, the decision to impose tariffs on steel and aluminum could eventually be the straw that broke the nearly 25-year-old trade deal.

“Unlike routine antidumping and countervailing duty cases or less common safeguard cases, the Section 232 authority the President will apparently use is rarely used and more controversial,” CNBC reported Jan Hatzius, chief economist at Goldman Sachs, as saying. Section 232 refers to an investigation under the Trade Expansion Act of 1962, which allows the president to impose tariffs on imports for matters of national security, which is the route Trump has taken with the proposal. “There is a good chance that this could eventually lead the President to announce he intends to withdraw from NAFTA, but such an announcement does not appear likely in the near term.”

Apart from inciting global trade wars and potentially upending NAFTA down the line, the steel and aluminum tariffs will also hurt U.S. consumers.

In a statement Thursday, National Retail Federation CEO and president Matthew Shay said, “Make no mistake, this is a tax on American families. When costs of raw materials like steel and aluminum are artificially driven up, all Americans ultimately foot the bill in the form of higher prices for everything from canned goods to automobiles. The reality is that there is nothing this country will gain from such a one-sided policy. These tariffs threated to destroy more U.S. jobs than they will create while sending an alarming signal to our trading partners and diminishing markets for American-made products overseas.”

Adding input on what the move might mean for sourcing, Sue Welch, CEO of retail-tech company Bamboo Rose, said the tariff announcement is a short-sighted policy that won’t likely serve sourcing.

“The impact of unpredictable material costs—like on aluminum and steel—have a ripple effect on the retail supply chain, causing disruptions that slow the sourcing and delivery of goods, and eventually lead to increased costs for products,” she said. “While some retailers who employ ‘what-if costing’ measures can rapidly adjust to economic volatility, many retailers don’t currently have these processes or technology in place to adequately manage these new tariff changes and the long-term impacts they will have.”

This week was a busy one for Trump and trade, as the president released his trade policy agenda Monday, reiterating that America First means “free, fair and reciprocal trade.” As a White House briefing on the agenda noted, “The United States aims to hold countries that break the rules accountable for their actions, while respecting the sovereignty of all nations.”

And reciprocal trade may also mean reciprocal taxes.

The president also said on Twitter Friday that he’s set to implement reciprocal taxes in another effort to rebalance the U.S. trade deficit.

“When a country taxes our products coming in at, say, 50%, and we tax the same product coming into our country at ZERO, not fair or smart. We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!” the president wrote in the post.