Trump’s import tariffs are here.
The president confirmed this morning that the US will roll out tariffs on steel and aluminum — of 25% and 10% respectively — effective from March 23.
Research from Chad Brown at the Peterson Institute for International Economics (PIIE) provides a useful summary of which countries will be most affected.
Brown also speculated on how those countries may choose to retaliate, in accordance with World Trade Organisation (WTO) guidelines.
Brown based his calculations on data which showed the dollar value of US imports in 2017 — $US29 billion for steel and $US17 billion for aluminum.
This table below neatly summarizes which nations were the largest exporters of steel and aluminum to the US last year:
Both Canada and Mexico are at the top of the list — but importantly, the US announced that both countries have been made exempt from tariffs pending the outcome of further NAFTA negotiations.
Brown also notes that the dollar value of China’s exports to the US amounted to $US976 million for steel and $US1.8 billion for aluminum — just 6% of the $US46 billion dollar total across both industries.
However, Trump’s steel tariffs may only be a drop in the ocean compared to the larger threat of alooming US/China trade war around intellectual property.
Despite all that, Brown then tried to get a picture of how the US’ various trading partners could respond to Trump’s tariffs with import restrictions of their own.
To reach his conclusion, Brown crunched some pretty serious numbers — but the end result looks like this:
Assuming Canada is exempt, Europe would be the country with approval for the highest retaliatory measures by dollar value — amounting to $US2.6 billion.
Brown’s analysis is based on what kind of retaliatory trade measures would be approved by the WTO, assuming that the WTO rules that the US tariffs are not justifiable on the grounds of national security.
This is the argument put forth by the US as the basis for the tariffs, in accordance with a provision of the US Trade Expansion Act of 1962.
To establish a formula, Brown chose the US Commerce Department’s own estimates of how tariffs would reduce import volumes.
He then assumed, that in response, the relevant countries will restrict volumes by a comparative amount on US exports going the other way.
“For steel, the report alludes to an economic model that claims a 24% tariff is equivalent to an import volume reduction of 37%,” Brown said.
“For aluminum, the claim is that a 7.7% tariff is equivalent to an import volume reduction of 13.3%.”
He then extrapolated those figures against the respective tariffs of 25% and 10% — resulting in a volume reduction of 38.5% for steel and 17.3% for aluminium.
Recall from the first chart that Europe exported $US6.2 billion of steel in 2017 — so 38.5% of that amount results in a possible trade retaliation of $US2.4 billion.
Brown said that WTO rules typically gives companies discretion about what industries they apply the responding tariffs on.
Notably, the European Union said during the week that any such measures could include tariffs on products ranging from bourbon to Harley Davidson motor cycles.