As predicted by almost everyone, the U.S. economy is now suffering a double whammy from Trump’s steel and aluminum tariffs. First in the form of higher prices and then from the loss of export markets as other governments retaliate. That retaliation has finally begun as Canada, Mexico, and the European Union recently announced they will impose reciprocal tariffs on a wide range of U.S. products.
But just as American tariffs hurt American consumers and producers, foreign tariffs harm foreign consumers and producers. Everyone loses in a trade war.
As far as the “trade war” goes, these retaliations definitely count as an escalation. U.S. trading partners are moving away from earlier attempts to negotiate exemptions and choosing instead to respond with tit-for-tat trade restrictions of their own.
Some have criticized these countries for retaliating without first going through dispute settlement at the WTO. One could argue that the Trump administration’s brazen disregard for WTO rules in applying the steel tariffs in the first place somehow necessitates a more prompt and forceful response, but that argument is political rather than legal, and the whole point of WTO rules is to impose legal discipline on political decisions.
A better argument for responding outside the WTO is to prevent the United States from invoking the national security exception of GATT Article XXI. Adjudicating the steel tariffs could threaten the legitimacy and viability of the WTO, by forcing judges to interpret the scope of that exception. We know the Trump administration doesn’t mind blowing up the WTO, so it might be wise for other countries to resolve this specific conflict through other methods.
Foreign leaders appear also to understand the negative economic consequences of their actions. Back in March when U.S. tariffs were first announced, European Commission President Jean-Claude Juncker lamented the necessity of retaliation, saying, “We can also do stupid.”
Perhaps that’s why Canadian, Mexican, and European retaliatory tariffs are clearly calibrated to impose maximum political pressure in the United States while minimizing their economic impact at home. European tariffs, for example, target products that are important for key members of Congress, including bourbon (from Mitch McConnell’s Kentucky) and motorcycles (from Paul Ryan’s Wisconsin). Canadian tariffs cover $12 billion worth of trade but are spread out across numerous products that are easy to source from somewhere else.
And Mexico has taken advantage of its status as the number one export destination for American pork and cheese by levying steep tariffs on those products. This sharply focuses the costs of the tariffs onto a few vulnerable U.S. industries, while Mexico has smartly mitigated the domestic consequences of the pork tariffs by reducing barriers for imports from other places, particularly Europe.
Unfortunately, it doesn’t seem likely that retaliation will actually lead to the revocation of the Trump administration’s steel and aluminum tariffs. Republican leaders in Congress have shown steadfast loyalty to Trump on trade, even as he dismantles and abuses both domestic and international legal frameworks GOP legislators spent decades building and defending. It’s hard to see how some commercial pressure is going to tip the scales.
Also, this administration doesn’t seem to care about the traditional politics of trade. If they did care, they wouldn’t have alienated farmers, exporters, innovators, investors, and manufacturers by starting a trade war over steel in the first place. Unless something unexpected happens, we’ll likely be living with all of these new tariffs until Trump leaves office.