The scolding coming out of Europe, Japan, and China left Donald Trump cold. Then, suddenly, skeptics whose opinions carry weight with the U.S. president came forward: Republican Party friends from all over the country, many of them dyed-in-the-wool Trump fans. Most of them will face midterm elections in the fall, a vote that is an important indicator for the president as well. Many of them fear that, in the end, the proposed introduction of broad tariffs on steel and aluminum will do more harm than good. Or, in other words, jeopardize their re-election.
A total of 107 Republican members of Congress signed a letter to Trump, which arrived at the White House midweek. Members of Congress come from places like from Michigan and Georgia, where large steel and aluminum processing companies such as General Motors and Coca-Cola are located, and who now fear that commodity prices will increase because of the tariffs. But they also come from other regions, such as Idaho, where farmers worry that they will get hit by Chinese and European retaliatory measures.
Efforts of the EU Commission Failed for the Time Being
That was the moment when Trump and his supporting staff suddenly started speaking about potential exemptions for the proposed tariffs. They will be 25 percent for steel and 10 percent for aluminum imports and come into effect in March. While signing the proclamations, Trump said that only “real friends” who “treat us fairly on both trade and the military” will get a reprieve. Initially, this only applies to neighboring Canada and Mexico. Europe, on the other hand, apparently does not fall into this category. Thus, the efforts of the European Commission have failed for the time being.
With the import tax, the president wants to protect domestic manufacturers from foreign competition, secure jobs and, if possible, create new ones. In fact, immediately after the release of the information, some U.S. steelmakers announced plans to re-open production facilities that had been shut down. What Trump has apparently overlooked was that although the industry employs 140,000 people, the steel-processing industry employs 6.5 million − almost 50 times that number.
When President George W. Bush made a similar move in 2002, the consequences were dire: The hope for new jobs in the steelmaking industry was not realized, and at the same time thousands of people in the manufacturing industry lost their jobs because companies relocated parts of their production abroad in order to avoid tariffs. In February, when a fellow party member brought up the issue, Trump responded defiantly: “[It] didn’t work for Bush, but nothing worked for Bush.”
Many Other Sectors Are Complaining
In addition to the construction industry, the American car industry is expected to be one of the sectors most affected by the tariffs. After a few successful years, it is facing challenges again, and the last thing it needs is higher steel prices. Many other sectors are complaining, as well, such as the beer industry, which still uses cans for a large part of the production, the food industry, for which the same is true, machine manufacturers, the aviation industry, the shipping industry and the electronics industry. “Make no mistake, this is a tax on American families,” Matthew Shay, president of the National Retail Federation, said.
Trump, however, who has a soft spot for heavy industry, is longing for a time when steel-making facilities in the U.S. − and Europe − virtually mass produced raw steel and dumped it on the market. Metal retailers then sold it, and ultimately the steel was used in bridges, engines or car bodies. But mass production has long since shifted to Asia, where every second ton is now produced in China. Worldwide, the industry has grown so much that, according to experts, it can produce 2.4 billion tons per year. The market, however, only needs 1.5 billion tons, so the market price has dropped sharply, and with it the number of jobs in the Western world. In Germany, for example, only 85,000 people still work in the steel industry. In 1980, that figure was three times as high.
In the Western World, It Is Hard To Earn Money with Mass Production
However, over-production and rising imports are not the only culprits responsible for job losses. Production facilities are becoming increasingly efficient. In 1980, one steelworker produced 150 tons annually. Today, that number has risen to almost 500 tons. In the Western world, it is hard to earn money from mass-produced goods because salaries are high and, in Europe, the same can be said about energy prices. That is why companies cut back production, cut costs and merge. But there are different kinds of steel. Many European manufacturers have developed products that are particularly solid or thin. They produce more and more custom steel, satisfying their customers’ requirements, even if they are overseas. Some, like the Austrian company Voestalpine, deliver special steel grades that are unavailable there to their factories in the United States. Tariffs would have a negative effect on these as well.
Other manufacturers are wondering whether their U.S. customers would be willing to pay higher prices for European steel. The competition in Europe would become even fiercer if the United States, the world’s largest importer, would isolate itself. In that case, steel originally meant for the U.S. market might be imported to Europe in the coming weeks Henrik Adam, chief commercial officer at Tata Steel Europe fears. “Experience shows that such production flows are quickly diverted.” Voestalpine boss Wolfgang Eder also believes that with a policy of isolation Americans would only shoot themselves in the foot. “The more a country tries to protect its own steel industry with tariffs, the smaller the incentive for companies to invest in advanced technologies,” said the former president of the World Steel Association.
But Trump does not want to deal with such reasoned arguments. For him, it is clear that a country needs its own steel industry because “[w]hen it comes to a time where our country can’t make aluminum or steel … you almost don’t have much of a country.”