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US introduces tariffs on steel imports

The United States has introduced 25% tariffs on steel imports on China, Russia and Japan in what may be the start of a global trade war.  While President Trump has introduced the tariffs ostensibly on national security grounds, the real motivation appears to be protecting steelworkers’ jobs, with the USA producing 82 million tonnes but importing 44 million tonnes of steel in 2017.

Much of the rhetoric has been about the trade imbalance with China, but in reality China’s steel exports amounted to only 3% of total US imports in 2017.  As this represents only 1% of China’s total steel exports, the tariffs on steel will have little impact on the Chinese steel sector.   Russia, with 5.9 million tonnes of exports, representing 21% of its total steel exports, and Japan (1.8 million tonnes and 15% of its steel exports) have much more to lose. 

Some of the USA’s most important trading partners have been forced to negotiate to avoid the imposition of the 25% tariffs.  South Korea has already agreed to introduce quotas to reduce its exports to the USA by 30%.  Agreements in principle have also been reached by the US with Brazil, Australia and Argentina. Brazil, as the leading exporter of steel to the US with 6.1 million tonnes and representing 17% of Brazilian steel exports, has much to lose from the imposition of tariffs.

The USA’s partners in NAFTA, Mexico and Canada, have been reprieved until the end of May, as has the European Union.  The EU exported some 5.2 million tonnes of relatively high value steel to the USA in 2017, representing 12% of US imports by volume and 18% by value. 

While smaller economies have succumbed to US pressure to introduce quotas, China and the EU have refused to be bullied.  China, which has also been subject to further tariffs on a wider range of goods, has introduced its own 25% tariffs on US goods such as soybeans, aircraft and cars.  The EU has stated that, “As a longstanding partner and friend of the US, we will not negotiate under threat" and in the event of the US imposing tariffs on its steel exports, the EU has vowed to introduce retaliatory tariffs on goods such as bourbon, Harley Davidson motorcycles and jeans.  This could be the start of a global trade war, with a US President who believes in making threats to secure agreements which are favourable to US interests, and two powerful trading partners in China and the EU that are unlikely to succumb to bullying tactics.