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    Evan Horowitz | Quick Study

    Small effects, big risks come with Trump’s new trade tariffs

    President Trump has announced new tariffs — a 25 percent levy on imported steel and 10 percent on aluminum.
    MANDEL NGAN/AFP/Getty Images
    President Trump has announced new tariffs — a 25 percent levy on imported steel and 10 percent on aluminum.

    The tariffs President Trump announced Thursday aren’t a big economic deal. What matters is the international response, and the uncertain question of whether today’s global leaders can keep minor trade disputes from spiraling into all-out trade wars.

    First, a sense of perspective is important here. Trump’s new tariffs — a 25 percent levy on imported steel, 10 percent on aluminum — are relatively narrow. Steel and aluminum amount to just 2 percent of all imported goods, which sets an upper limit on the real-world effect of the move. Plus, Trump isn’t blocking imports, just taxing them (that’s what a tariff is, a tax on imports).

    So what we’re really talking about is a targeted tax on a relatively small part of our trade portfolio. Compare this with Trump’s campaign rhetoric, in which he pledged a 45 percent tax on all goods from China — which make up more than 20 percent of US imports.


    And it’s not as if Trump’s move is unprecedented. Fifteen years ago, President George W. Bush placed his own tariffs on steel, with great controversy but less in the way of damaging fallout.

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    There will nonetheless be winners and losers from Trump’s tariffs. Domestic steel and aluminum producers stand to benefit most, now that their foreign competitors have to pay a border tax.

    But there will definitely be costs, not least for businesses that rely on steel and aluminum to make things like cars, ovens, even surgical tools. The cheap, imported metals they use will suddenly get more expensive, thanks to the tariff. And for scale, it’s worth noting that there are many more workers at business that buy steel than at those that make steel.

    Don’t forget consumers, either. They, too, will pay, in the form of higher prices on cars and other goods. It probably won’t have a big effect — it didn’t during the Bush tariff — but there could be some sticker-unease, if not sticker-shock.

    The biggest and most worrisome risks don’t stem from the direct economic effect but from the international fallout.


    Like the prospect of retaliatory tariffs from countries that send us their steel and aluminum — not China, which is way down the list, but longtime allies including Canada, Brazil, South Korea, and Mexico. Trump seemed to almost goad other countries into reacting with his tweet early Friday, in which he said, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”

    Sure enough, a leading figure in the European Union on Friday discussed the possibility of taxing signature American products like Harley-Davidsons, Levi jeans, and bourbon. Canada may well target US agriculture, too.

    At the same time, opposing countries could challenge the rules at the World Trade Organization, as happened during the Bush effort. Trump has crafted a unique rationale — on the idea the United States needs domestic steel and aluminum production in case there’s a national emergency that cuts off imports. That’s an untested argument, and it may not be a winning one.

    And this is where the ultimate problem lies. What if other countries do retaliate, or the WTO invalidates these tariffs, but Trump refuses to back down? There’s no WTO police force, just the risk of accelerating sanctions from other countries. That could upend decades of progress toward international economic cooperation.

    This is all entirely hypothetical, though a faction within the White House undoubtedly raised these issues in making their ultimately unsuccessful argument against imposing the tariffs. For now, all we’re talking about are limited levies on steel and aluminum, with direct economic effects that are likely to be industry-specific and small in scale.


    And really, it shouldn’t be hard to stop a global trade war. Someone, somewhere, just needs to know when to fold. But judging from his tweet Friday morning, it won’t be President Trump.

    Evan Horowitz digs through data to find information that illuminates the policy issues facing Massachusetts and the United States.
    He can be reached at Follow him on Twitter @GlobeHorowitz.