Trading partners set to punish Trump for steel tariffs

Foreign governments are threatening to launch stiff retaliatory measures against the United States if President Trump carries through on his threats to impose a 25 percent tariff on all steel and an 10 percent tariff on all aluminum imports to the United States.

European Commission President Jean-Claude Juncker told a German television station that Europe would retaliate against the sanctions with tariffs of its own.

“We will put tariffs on Harley-Davidson, on bourbon and on blue jeans — Levi’s,” he said.

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Those tariffs may have been designed to send a message to leading Republicans, who may still prevail upon Trump to change his mind or soften his approach. 

Senate Majority Leader Mitch McConnell hails from Kentucky, where the bourbon industry exported $154 million to the European Union last year alone, according to figures cited by CNBC.

Harley-Davidson’s headquarters are in Milwaukee, Wis., House Speaker Paul Ryan’s home state. Levi-Strauss blue jeans are headquartered in the blue state of California, which is also home to House Majority Leader Kevin McCarthy.

In previous trade standoffs, Junker threatened tariffs on Wisconsin dairy and Florida orange juice.

Canada, the largest source of U.S. steel imports, noted that the steel trade was a two-way street.

“The United States has a $2-billion surplus in steel trade with Canada. Canada buys more American steel than any other country in the world, accounting for 50 percent of U.S. exports,” Canadian Foreign Affairs Minister Chrystia Freeland said in response to the threatened tariffs.

Last year, U.S. exports of goods and services accounted for 12 percent of the entire economy, so a broad-based reaction from U.S. trade partners could hit the economy hard. 

One major U.S. export sector that could be targeted if the tariffs go ahead is agriculture. 

“When you’re talking about sectoral actions, the vulnerable industries are the ones that are dependent on exports, and that’s a lot of agricultural products,” said Jeff Schott, a senior fellow at the Peterson Institute for International Economics.

Canada, South Korea and Japan, all major steel exporters to the US, are also big importers of U.S. agriculture, he noted.

“If they’re looking for ways of inflicting pain on the United States, then agriculture is going to be a prime target,” he said.

Agriculture is also a major contributor to key red states, which could put pressure GOP politicians.

“What they’ll be looking for are products where they think there will be a political impact. If you look at agricultural products, they’re all around the Midwestern states, which are Republican states,” said Claude Barfield, an economic expert at the conservative American Enterprise Institute.

Countries that want to send the U.S. a strong message on trade could easily hit the aerospace industry by targeting Boeing, which employs nearly 150,000 Americans.

Not only would the company suffer from higher steel prices, but foreign buyers hoping to hit the U.S. could simply opt to buy from Boeing’s European competitor, Airbus.

Beyond concerns over U.S. soybeans, pork and planes, Barfield said that Trump’s decision to sidestep trade law by invoking national security could open up a longer-term threat to U.S. trade.

“Where the U.S. is also in danger right now is that we are setting a terrible precedent on invoking national security for trade,” he said.

U.S. trade partners could easily follow America’s lead and claim all sorts of industries in their countries need protection for national security reasons. In 1975, for example, Sweden invoked national security when it imposed quotas on footwear, claiming that its army’s need for shoes made the industry critical.

China, in particular, is adept at using national security arguments to shape their trade and manufacturing policy, said Barfield.

“This is just a gift to the Chinese,” he added.