Trump plans to announce steel tariffs, but may allow exemptions for U.S allies after all

By Don LeeStaff Writer

March 7, 2018 3:05 PM PT

Reporting from Washington — President Trump is expected as early as Thursday to sign off on his controversial plan to slap stiff tariffs on imported steel and aluminum, but in a surprise reversal the White House opened the door to exemptions for products from Canada, Mexico and other U.S. allies.

Carve-outs for certain countries from Trump’s proposed double-digit duties would mark a retreat from the president’s insistence earlier that the levy would be across the board.

And that could mollify leading U.S. trading partners and allies that have roundly criticized the tariffs and threatened to respond with retaliatory measures.

Excluding allies from the tariffs also could help Trump better focus on his intended target, China, especially at a time when the U.S. and other Western powers have begun to take a more skeptical view of Beijing in light of the Chinese leadership’s increasingly assertive and expansionist activities.

Though China’s overproduction of steel is seen as the primary cause of a global glut, the United States gets a relatively small amount of imported metals from China. Instead, most U.S. steel and aluminum imports come from Canada and other allies.

So sharp opposition and threats of retaliation have come not from Beijing, but from Washington’s staunchest allies. European Union leaders Wednesday endorsed a plan to target for counter-tariffs items such as American steel, chewing tobacco and orange juice.

“Right now what this is doing is getting all of Europe’s attention and energy, [and a] focus on pushing back against the United States, not pushing on China,” said Jennifer Hillman, a Georgetown University law professor and former member of the World Trade Organization’s appellate body.

Trump’s announcement last week that he would apply blanket tariffs of 25% on imported steel and 10% on aluminum shocked trading partners and led to the resignation of the White House National Economic Council director, Gary Cohn.

As the White House’s top economic advisor, Cohn had been a moderating influence on Trump’s protectionist impulses, but the president went ahead with the tariff proclamations despite Cohn’s advice and that of congressional Republicans and business leaders that such action could hurt economic growth and lead to a trade war.

On Wednesday, 107 House Republicans sent Trump a letter urging him “to reconsider the idea of broad tariffs to avoid unintended negative consequences to the U.S. economy and its workers.”

White House Press Secretary Sarah Huckabee Sanders confirmed that Trump’s proposed tariffs would be formalized by week’s end. She said the final plan could allow countries to be excluded.

“There are potential carve-outs for Mexico and Canada based on national security and possibly other countries as well, based on that process,” Sanders said. She added that decisions would be made on a “case-by-case and country-by-country basis.”

Previously administration officials had resisted any exemptions, warning it would open a Pandora’s box.

Trump’s tariff authority comes from a U.S. law that allows the president wide discretion to apply duties or other restrictions if the Commerce Department has found imports present a threat to national security. That determination was made — the first time a U.S. president has done so under the law in decades.

After formally being announced by the president, the tariffs must be implemented within 15 days, Hillman said. That window would give nations and companies time to request exemptions.

The Commerce Department’s report to Trump said exclusions from the tariffs could be made based on national security or if there was a lack of sufficient American production capacity.

Canada is by far the largest single shipper of steel and aluminum to the United States. And Mexico, South Korea and Japan, as well as North Atlantic Treaty Organization members such as Germany and Turkey, stand to be among the biggest losers if the tariffs take effect.

China, by contrast, accounted for just 2.4% of all iron and steel imports to the United States last year, thanks to many prior American dumping duties placed against various Chinese steel products in preceding years.

“I think ultimately that Mexico and Canada are part of the solution on steel, whether that’s declared later this week or down the road,” said Scott Paul, president of the Alliance for American Manufacturing, a group that has advocated for strong actions to protect U.S. steel producers.

Paul added, however, that “we must ensure that the governments of Mexico and Canada are vigilant against circumvention, join the U.S. in active trade actions to keep excess steel out of the North American market, and renegotiate NAFTA to work better for workers in all three nations.”

Trump this week linked the metals tariffs to the North American Free Trade Agreement, suggesting that Canada and Mexico could get a pass only if they offered concessions on NAFTA renegotiations. Canadian and Mexican leaders rejected the connection.

China, for its part, has said very little about the proposed tariffs, apparently having decided to wait until the duties are finalized and made public. The Chinese know that Trump in the past has said one thing and changed his mind later.

“The Chinese are trying to play the long game, whereas the EU and allies are frustrated,” said Andy Rothman, a former economic officer at the U.S. Embassy in Beijing and now an investment strategist for Matthews Asia in San Francisco. “Their rhetoric was quite calm and restrained,” he said, although prior to the tariff announcement, Beijing sent a warning that U.S. protectionist measures could be met with limits on American imports of sorghum and other farm goods to China.

In the last year, the administration has issued anti-dumping and illegal subsidy duties on individual Chinese products, as it has on those of other countries. Trump has also opened an investigation into China’s theft of intellectual property and forced technology transfer, which could result in significant punitive actions such as large tariffs or restrictions on imported electronics from China.

But many viewed across-the-board tariffs as a blunt instrument that would miss the target and undercut a united front with allies to tackle the problem. In short, analysts said, with the proposed tariffs, Trump was picking a fight with the very people he needed to help him pressure China.

“It seems to almost target our friends more than China,” said David M. Lampton, director of China studies at the Johns Hopkins School of Advanced International Studies in Washington.

Lampton saw the tariffs as particularly ill-timed and counterproductive because the United States and others in the West have undertaken a broad reassessment of their approach to China after Beijing’s retreat from a 2013 pledge to liberalize its markets, as well as its aggressive actions in the South China Sea and at home to snuff out dissent.

And this week China’s parliament began the process that would allow Chinese President Xi Jinping to rule for life, raising concerns in and outside of China of a return to dictatorship.

Even as Trump himself has sent conflicting messages on China, excoriating Beijing on trade while praising Xi and his bid to eliminate term limits, the Trump administration has singled out China, along with Russia, as a major threat to American security and prosperity.

Before, the posture of the U.S. and many of its allies was largely to co-opt China into the global system on the presumption that its development would lead to a convergence with democratic institutions and open markets styled in the West. The American strategy had earlier sought to divide Russia and China in ways that might be in the U.S. national interest, Lampton said.

“It seems to me that we have an overall national strategy that takes China and Russia to be co-equal, big-power competitors, [but] we’re alienating all the allies we need to deal with it,” he said. “What I see is this tariff thing comes in the context of redefining the era where we need friends.”

China experts said the Obama administration had pressed Beijing to open China’s financial services market, among other areas, only to see Chinese leaders drag their feet. Trump had said he would treat China more lightly on trade if Beijing cooperated with the U.S. in pressuring North Korea to rein in its nuclear program. The Chinese have helped but not as much as Trump has wanted.

“There are a lot of areas Beijing has not done what it’s supposed to do,” Rothman said. “The question is, what’s the right mechanism for that? And going after steel and aluminum is not it. That’s not really where we will make the most gains that benefit most Americans.”

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