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Trump Signs Metals Tariffs Sparing Some Allies

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03/09/2018 | 01:38am CEST

By Jacob M. Schlesinger and Rebecca Ballhaus

WASHINGTON -- President Donald Trump kicked his "America First" trade policy into high gear Thursday, launching global tariffs on steel and aluminum, while signaling even more aggressive pressure on trading partners to come, especially against China.

In announcing the measures, the president outlined his broader coming trade agenda, including rewriting existing U.S. pacts and a continuing sweeping investigation of Chinese trade practices, issuing a veiled threat that even bigger penalties are looming against Beijing. "We're going to cut down the deficits (with China) one way or the other," he said.

As Mr. Trump ratcheted up rhetorical pressure on China, the U.S.'s largest trading partner, he unveiled metal industry protections that were considerably softer than opponents had feared a week ago when he first announced they were coming. The president and aides had originally said no countries would be exempt from the 25% steel tariff or 10% aluminum tariff, but on Thursday suggested that a large number of countries could ultimately be spared.

"We're going to show great flexibility" by considering exempting military allies, Mr. Trump said, and he started by excluding Canada and Mexico immediately. Earlier in the day, he indicated Australia, which he called a "great country" and a "long-term partner" could also eventually be exempted.

The moderated position reflected a week of global lobbying and counter-threats from allies, as well as complaints from U.S. businesses, members of Congress from his own Republican Party, and officials in his own administration.

But Mr. Trump made clear that he is determined to fulfill his campaign promise of re-balancing what he sees as a global trading system that doesn't serve the U.S. well.

"We lose $800 billion a year on trade," he said in the White House Roosevelt Room, surrounded by cheering workers, referring to last year's U.S. trade deficit. "It's going to start changing -- has to change."

He also vowed, without offering any details, a new broader global tariff regimen down the line, a "reciprocal tax," or "a mirror tax" that would aim to slap the same level of duties on trading partners that U.S. firms face in those countries.

For advocates of the longstanding U.S. support for free trade and globalization -- a consensus of leaders of both the Democratic and Republican parties that Mr. Trump seeks to upend -- Thursday marked a symbolic turning point, with the president signing controversial new trade restrictions a half hour after the leaders of 11 close U.S. trading partners met in Chile to sign the Trans-Pacific Partnership trade pact. President Barack Obama had spearheaded the deal but Mr. Trump pulled the U.S. out on one of his first days in office.

"While the TPP countries have today signed an agreement tearing down trade barriers, President Trump and his trade team are hard at work raising them," said Daniel Price, a senior White House economic aide in the George W. Bush administration.

The tariffs also drew criticism from many of the same GOP lawmakers who worked with the White House through much of last year to push through a tax cut. They warned the fallout from the tariffs could reverse the economic gains from that measure, and scrambled to figure out if there was a legislative way to rein in the president.

"I disagree with this action and fear its unintended consequences," House Speaker Paul Ryan said. While saying he was pleased with the prospect of some exemptions, the Wisconsin Republican added that "we will continue to urge the administration to narrow this policy." Arizona GOP Sen. Jeff Flake, who has regularly tangled with the president on trade, said he would "immediately draft and introduce legislation to nullify these tariffs."

The tariff policy was also highly contentious inside Mr. Trump's administration, pitting economic nationalists like White House trade adviser Peter Navarro and Commerce Secretary Wilbur Ross -- the chief architects of the policies -- against free-trade advocates, notably White House National Economic Council director Gary Cohn. While the economic nationalists won the main war, the free-traders won a key skirmish by watering the policy down with the country exemptions, the source of last-minute intensive debates inside the White House as plans were being finalized over the past few days.

Earlier in the week, Defense Secretary Jim Mattis joined Secretary of State Rex Tillerson at a meeting with the aides crafting the tariffs, following pleas they had received from the U.K. and Canada, among others. Mr. Tillerson's spokesman said he "made clear the views of our allies with whom we have spoken."

Administration attorneys struggled to dovetail the request for exclusions with the president's stated rationale for the new tariffs, which was to declare a national security emergency invoking a little-used Cold War-era law giving presidents wide discretion to block imports if they were deemed a threat to military readiness. If the tariffs were needed to protect the two industries and the nation, then approving exclusions seemed to undercut that argument, explained one person familiar with the internal debates.

One person fighting for the country exclusions was Mr. Cohn, who opposes the tariffs and tendered his resignation after he was excluded from meetings last week when the president decided to move forward with the import curbs. Mr. Cohn -- who remained engaged on the issue this week, attending high-level meetings that included members of Mr. Trump's cabinet -- pushed for carve-outs for Canada, Mexico and Australia, said two people familiar with the debate.

Ultimately, the Australia exception was abandoned as officials decided it would be easier to protect the country with a product exclusion later in the regulatory process. Mr. Cohn stood in the back of the room when Mr. Trump made the tariff announcement, and the president didn't mention him, even as he singled out other officials standing next to him who had shaped the tariffs.

The full scope and impact of the tariffs now appear dependent on negotiations with allies likely to unfold in the coming weeks and months. There will be a separate process for U.S. companies using steel and aluminum to seek exemptions for their products by arguing that they can't get sufficient supply from domestic producers.

Both Canada and Mexico would be exempt from the outset, though their continued exemption would be contingent on the outcome of ongoing negotiations to rewrite the North American Free Trade Agreement as well as broader talks about security ties among the neighbors, a senior administration official told reporters ahead of announcement.

"This is a wonderfully flexible document," the official said, referring to the two proclamations.

The prospect of exemptions appeared to prompt many trading partners to temper some of their heated rhetoric of the past few days. European officials last week threatened swift retaliation, making public a list of iconic American products -- motorcycles, blue jeans, bourbon -- they would block in response to the steel measures, prompting fears of a pending global trade war. "The EU is a close ally of the U.S. and we continue to be of the view that the EU should be excluded from these measures," Cecilia Malmstrom, the European Union's top trade official, said in a tweet from her official account. "I will seek more clarity on this issue in the days to come."

The official didn't explain the process by which allies could seek exemptions, nor what considerations would factor into the decision to grant exemptions or tariff reductions. But it is likely that a long list of U.S. allies will seek exemptions, notably North Atlantic Treaty Organization members in Europe, and Japan and South Korea.

South Korea will pose a particularly nettlesome challenge, since administration trade officials consider it one of the worst offenders in dumping into the U.S. cheap steel products originating from China, while administration security officials consider it a crucial ally in combating North Korea's nuclear weapons program.

The administration official did say that the White House remained committed to blocking a fixed amount of steel and aluminum from flowing into the country. So for every country given relief from the plan, the burden may have to be increased on the rest of the world.

"If Canada and Mexico were to be excluded, we would perhaps maybe have to raise tariffs on everybody else to ensure our steel and aluminum industries are defended," the official said. He didn't say how high those tariffs would need to go. But when the Commerce Department last month gave Mr. Trump a series of options for carrying out the policies, one option presented was to spare most military allies and then impose a 53% tariff on 12 countries ranging from Brazil to China and Egypt.

Canada and Mexico were, respectively, the first and fourth largest sources of foreign steel in the U.S. in 2017, together accounting for one-fourth of all steel imports, according to a Commerce Department study conducted for the policy. The two countries ranked first and 11th in aluminum imports, accounting for 43% of foreign supplies, Commerce said.

Mr. Trump said his policies are already resuscitating the hard-hit steel industry, citing an announcement Wednesday by United States Steel Corp. that it will restart a blast furnace in Illinois and call back to work 500 employees.

And the White House has spent the past week minimizing any possible economic fallout from the moves, saying the benefits would far outweigh the costs on industries using steel and aluminum.

"There will be no significant price effects...or job effects downstream, " the administration official said Thursday. "This is simply fake news."

Outside economists, business groups and metal-using industries have been far more dire in their forecasts.

(MORE TO FOLLOW) Dow Jones Newswires

03-08-18 1937ET

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