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Trump tips off trade wars around the world

Posted March. 03, 2018 07:44,   

Updated March. 03, 2018 07:45


U.S. President Donald Trump announced that his administration would “impose a 25 percent tariff on steel and 10 percent tariff on aluminum imports for a long period of time” during a meeting with steel and aluminum executives on Thursday (local time). Among the three options recommended to Trump as a result of the Commerce Department’s investigation of the effect of steel imports on national security under the Section 232 of the Trade Expansion Act, he chose an option to impose tariffs of 24 percent and 7.7 percent on all steel and aluminum imports, respectively, but with higher tariffs. The new policy has yet been fully crafted, but if it’s any consolation, South Korea was able to avoid the worst-case scenario in which Washington would slap a 53 percent tariff on 12 countries.

Trump’s latest announcement of sanctions on steel imports is way beyond the range of protecting American industries, and is no different from the proclamation of a trade war. Retaliatory trade actions are already looming on the horizon as Washington’s major allies such as Japan and Canada have expressed opposition immediately, not to mention China. European Trade Commissioner Cecilia Malmström said in an interview with the Financial Times that the European Union considers imposing “safeguard” tariffs on (U.S.) steel and aluminum imports in retaliation.

What is more worrying is that the Trump administration based the imposition of new tariffs on a threat on its national security. The World Trade Organization (WTO) allows countries to levy tariffs on imports for the reason of wars or national threats, but the provision has been little used as it can lead to unintended trade barriers. Section 232 of the U.S. Trade Expansion Act of 1962 was also initially aimed at the Communist bloc including the former Soviet Union, but had not been applied by Washington in respect for the existing free trade order until it has been just used by Trump for the latest set of tariffs. What this means is that other countries can now easily build a trade barrier by freely imposing a so-called “security tariff,” shaking the international community’s decades-long free trade order to its core.

Meanwhile, both conservatives and liberals in the United States have sprung up to criticize President Trump’s new sanctions, which he claims would protect American industries. The conservative Wall Street Journal has warned that the latest action will be Trump’s biggest policy mistake during his term in office. The Washington Post also expressed concern that increasing jobs in the steel and aluminum industries will be offset by layoffs in other industries. With the new tariffs projected to drive down the U.S. growth rate of this year by 0.2 percentage point, stocks fell by 1.68 percent shortly after the announcement. If this triggers a global trade war, South Korea, as the world’s sixth-largest exporter, will become one of the countries that bear the most brunt. South Korea’s trade authority should continue to monitor in real time recent developments and protectionist movements in and around the country, including its largest trade partners, the United States and China, and prepare against the worst possible situation of plummeting global trade.