President Donald Trump is trying to make America great at the cost of other countries and it is reflected in his unilateral policy decision regarding imposition of import tariff without any iota of concern for the comparative advantage of other countries, the same thing on which America was once reaping huge trade advantages. He slapped 25 percent of import tariff on steel and 10 percent on Aluminium imported to America. Although China retaliated, Japan complained and South Korea bargained some relief, the European Union has now planned to start imposing duties from July on a list of U.S. products in response to President Donald Trump’s decision to slap tariffs on steel and aluminum imports from Europe.

EU retaliates against US tariffs

According to the plan, the EU is likely to introduce “rebalancing” tariffs on about 2.8 billion euros’ ($3.4 billion) worth of U.S. steel, agricultural and other products, including bourbon, peanut butter, cranberries and orange juice. European Commission Vice-President Maros Sefcovic said on June 06 that formalities in finalizing the list should be completed this month and that “the new duties start applying from July.”It is noteworthy that the European Union exported about 5.5 million tons of steel to the U.S. last year. European steel producers are concerned about a loss of market access but also that steel from elsewhere will flood in.

Key Senate Republicans, meanwhile, are pushing longshot legislation that would require Congress to sign off on President Trump’s import tariffs, a rare attempt to stand up to the administration on a bedrock issue that once defined the GOP. Trump took office promising to rip up trade deals and crack down on unfair trading practices. But that campaign slogan is at odds with Republicans’ longstanding preference for free markets and open trade. The standoff is raising an uncomfortable question: If Republicans can’t confront Trump on trade; can they challenge him on anything? “For Republicans, this is who we are,” said Sen. Jeff Flake, R-Ariz. “If we believe our own rhetoric — on trade, tariffs and congressional prerogative — I hope it does come to a vote.” The idea being pursued by Corker, Sen. Pat Toomey, R-Pa., and others who have been meeting privately — and with Democrats — would be narrowly crafted legislation requiring congressional approval of the tariffs Trump has imposed in the name of national security. They’re targeting Trump’s reliance on the so-called 232 authority, named from Section 232 of the Trade Expansion Act of 1962, which allowed the administration to impose tariffs of 25 percent on imported steel and 10 percent on imported aluminum from Mexico, Canada and the European Union, some of the U.S.’s top allies. The senators are also hoping to halt Trump’s threat to slap tariffs on auto imports, including those from Japan.

South Korea wins an exception

It may be recalled that South Korea won a permanent exemption from Washington’s new tariffs of 25 per cent on steel and 10 per cent on aluminium, which came into effect on March 23, to become the first US ally to receive an indefinite reprieve from the hefty tariffs. But Washington was able to limit South Korea’s steel exports by imposing a quota of 2.68m tonnes, or 70 per cent of the annual average Korean steel exports to the US over the past three years. South Korea is the third-largest steel exporter to the US and the biggest importer of Chinese steel. The relaxation to South Korea sparked criticism in the US that it was being used as a conduit for China’s excess steel capacity. The US is South Korea’s second-largest trading partner after China, with bilateral trade reaching $119.3bn last year

Effect of US import Tariffs on Japan

On the other hand Japan’s steel industry is worried about the United States policy of imposing new tariffs on steel and aluminium. Analyst consider new US tariffs as a tactic to win better deals in wider trade pacts such as CPTPP. Trump temporarily excluded six countries, including Canada and Mexico, and European Union states from higher U.S. import duties on steel and aluminum. The exclusion included most U.S. allies, but not Japan. Japan failed to win an exemption, even though many of close U.S. allies secured carve outs (some of which have since expired, causing further friction). Last month, Tokyo filed a notification with the World Trade Organization (WTO) that it reserves the right to impose counter-measures. The notification estimated that Japan faced a $415 million annual hit from the 25 percent tariff on steel and a $25 million impact from the 10 percent tariff on aluminum. With the Trump administration launching a similar national security-related investigation into automotive imports in the past couple of weeks, Japan is seriously alarmed. The U.S. is the biggest market for Japanese carmakers, underpinned by a trend of production moving to the United States. Japan’s economy would take a hit equivalent to 0.1 percent of GDP (or about $5 billion) if Washington slapped tariffs of 25 percent on imports of cars and car parts, according to modeling by Germany’s ifo Institute. This comes as policymakers digest the news that Japan’s economy contracted in the first quarter of this year – marking the end of a two-year run of uninterrupted quarterly growth. Japan has now started publicly criticizing US move of imposing import tariff.

Effects of US protectionism on India

As far as India is concerned India’s exports of steel items to the US are estimated at about $ 500 million per year. The country’s share in prime steel imports in the US is 1.28 per cent, while in aluminium it is 1.12 per cent. Therefore, the direct impact of heavy tariffs on imported steel and aluminium will not be very big on India. It Yet would impact India’s engineering exports, maybe not directly but indirectly. If the policy of protectionism is pursued by the US regime, India would also suffer in the medium and ling run. India is ninth in the list of US’ trading partners that have a trade surplus. Trade surplus means that we export more to the US than we import from the country. India’s exports account for a hefty 15% of US’ aggregate trade with the world. Gems and diamonds are India’s biggest goods exports to the US, followed by pharmaceuticals, textiles, fish and petroleum products. As of now, these exports are not on the radar of the US, but there is a risk of retaliatory tariffs on these goods. Trump’s clamp-down on steel and aluminium imports will not impact India much as just about 4% of the steel exports flow into the US; while aluminium exports constitute 2% of total US aluminium imports. While the direct impact of higher metal tariffs on Indian firms will be limited, there is a possibility that muted metals demand, owing to cooling off in global trade, will put metal prices under pressure, hurting the operating profits of Indian metals and mining firms, such as Tata Steel, SAIL and Hindalco, among others.


What Donald Trump is missing is that the world today is a very different world from what it was in early decades following the World Wars. The geo-economic and geo-political matrices are changing fast and they are still in flux. There are rising aspirations in all the developing and emerging economies and China is out to increase its global outreach through trade and investment. Russia and Germany would also try to defend their economic and geo-political interests. If “America first” is the slogan and “protectionism” is the strategy of president Trump to achieve his goals, by the same logic no country in the world would remain behind in responding in the same coin with their own set of retaliatory policies. Even if America does not accept that it is “waning power”, the countries suffering from new policies of the US would not tolerate the policies that impede their rise and progress. Global integration and free trade was eulogized as golden policy by the US as long as benefitted it, now the same US is adopting protectionism while pleading others to remain open. Heads I win and tails you lose was the logic of imperialist era. Times have changed much and if US would slap losses to others, it’s not long the other’s also retaliate in the same coin. And this will eventually give birth to trade wars and in trade wars there are no winners; it is a self destructive path. The finer reading is that creating pressure on trade partners for balanced trade is one thing and punishing them like a global police is other. Gone are the days of unilateralism and hegemony, the ground reality demands adjustment and cooperation. This is true for all the stakeholders, be it China, Russia or the US.

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