After extensive international lobbying and the emergence of deep divisions on trade within the Republican Party, President Trump slightly softened his stance on import tariffs for steel and aluminum entering the United States, but nevertheless launched the 25% and 10% tariffs.
Canada and Mexico were exempted from the new tariffs, despite initial White House statements that no country would be exempted. However, the President’s current position appears to be that the exemption’s continuance will be dependant on Canada and Mexico’s willingness to renegotiate parts of the North American Free Trade Agreement (NAFTA). The President also signaled that military allies in Western Europe and Australia could also gain an exemption.
Placing the tariffs in the context of his broader trade agenda, President Trump once again made clear his belief that China has engaged in unfair trade practices and also hinted that the tariffs were ultimately directed at them, saying, “we’re going to cut down cut down the deficits one way or another.”
A small amount of U.S. steel imports originate in China – roughly 2% of the total, while Canada and Brazil are responsible for 16% and 13% of U.S. steel imports respectively. But, China is now responsible for almost exactly half of global steel production according to the World Steel Association. The United States is now only the world’s fourth-largest steel producer, with a 5% share of the global market.
The current account deficit for the United States last year – a slightly broader measure of the trade deficit – was $566 billion, or 2.4% of GDP. While China’s overall trade surpluses have been declining, it is still responsible for about two-thirds of the United States’ trade deficit.
The tariffs have led to worries on Wall Street that a trade war could be brewing, causing volatility in a stock market already uneasy over the prospect of higher interest rates.