It makes sense to ask why the Trump administration was given almost a year to decide whether aluminum and steel imports were threats to national security, yet it took only 90 days for the president to act on that decision. But three months was ample time to peruse or even skim through some of the hundreds of pages on global trade to come to a constructive conclusion.

Apparently, President Donald Trump couldn’t be bothered. Instead, on March 1, well before the mid-April deadline, he jumped the gun, tossing out a rash and unexpected decision that was even more severe than any of the three aggressive options offered by Commerce Secretary Wilbur Ross.

Trump chose the most aggressive of three options -- a blanket tariff on all imports of aluminum (7.7 percent) and steel (24 percent). He then made matters worse by upping the ante to 10 percent and 25 percent, respectively. The immediate result was a storm of global discontent.

Slapping on blanket tariffs could be considered a policy blunder. But it’s worse than that, because the move lacks strategy. And it poses significant risks to broad facets of the industrial metals sector and the global economy.

Since March 1, it’s become clear that trade protections can and will bring retaliatory responses from US trading partners. Such actions would push up costs for domestic manufacturers with steel and aluminum inputs, and ultimately for American consumers. The measures would hurt hundreds of sectors to protect two.

The result was multiple politically motivated retaliatory threats against US exports such as bourbon, blue jeans and automobiles. The list is likely to grow to include some of the largest industry contributors to US gross domestic product, such as energy and defense. A steel tariff would create costly complications for oil and gas pipeline operators.

Sadly, the only industry to benefit would be a dying one -- US metallurgical coal producers. That sector has been eyeing potential moves to stymie steel imports in the hope of increases in domestic demand should an infrastructure plan come to fruition.

Here are some lessons from the trade decision and some crucial policy changes that should be addressed:

Revoke or revise Section 232 of the 1962 Trade Expansion Act, which allows the president to impose tariffs without congressional approval. Also, 232 focuses on whether the importation of an article or quantities thereof threatens national security. While it has been invoked only twice previously -- to limit oil imports from Middle East adversaries Libya and Iran -- using it for metals would open the door for a potential avalanche of security-threat cases not only on imports but on international business transactions, too.

Block blanket tariffs or quotas. While these measures are intended to combat overproduction in China, that country’s products are already subject to US import restrictions.

Proposed tariffs are likely to have a greater impact on European allies and Asian suppliers like South Korea and Japan with which the US has good trade relations and sizable exports. Additionally, it’s a gift to adversaries such as Russia, which would profit from disputes between the US and Europe, or China and Korea. US sanctions on Iran, Russia and North Korea were enacted for legitimate geopolitical reasons. Tariffs, like sanctions, need to be targeted and purposeful.

Respect and uphold the US role in the World Trade Organization. The US was a leading force in establishing the organization in 1995, which now has 135 member nations. Now America is invoking national security to destroy an intricate set of trade agreements that it spent decades putting together. The WTO is the global arbiter of trade disputes and a forum for countries to enforce agreements. The Trump administration is likely to face challenges before the WTO. South Korea is considering filing a complaint if the US levies heavy duties on steel; other nations are likely to follow suit.

This international trade friction from the tariff decision is occurring even as the US is renegotiating Nafta and two dozen Senate Republicans are urging Trump to re-engage in the Trans-Pacific Partnership. Complaints against the US will make it more difficult in both cases.

Pay attention to timing. Without careful consideration, reducing imports will have a negative impact on US metals buyers in the short and medium terms. For the aluminum industry, restarting idled capacity takes about nine months. Then, each smelter needs to start running toward optimal capacity, which also takes time. Realistically, it may take 12 to 15 months to reach optimal production.


Shelley Goldberg
Shelley Goldberg is an investment adviser and environmental sustainability consultant. -- Ed.

(Bloomberg)