NEWS
09/03/2018 12:21 GMT | Updated 09/03/2018 13:34 GMT

Donald Trump’s Import Tariffs Could Be Seriously Bad News For Post-Brexit Britain

'It doesn't bode well.'

Donald Trump’s steel tariffs could have a devastating effect on the UK steel industry - and could compound the possible negative economic effects of Brexit, campaigners have warned.

The measure, which the US President said was aimed at protecting national security and American jobs, could trigger a full-blown trade war if the European Union responds with countermeasures.

This could have a significant impact on the UK, at a time when the government is anxious to secure a “mutually beneficial” trade deal to help bolster the UK economy post-March 2019, when Britain will exit the European Union.

The tariffs - 25% on steel and 10% on aluminium - will go into effect in 15 days, although Canada and Mexico will be exempt while negotiations continue over the North America Free Trade Agreement (Nafta).

On Friday a spokesperson for Prime Minister Theresa May said that the UK would work with the EU to seek exemptions from impending tariffs on metals. The EU has said it should be exempt from the tariffs because the bloc is a close ally of the US.

“Tariffs are not the right way to address the problem of global overcapacity,” the spokesman said. “We will work with EU partners to consider the scope for exemptions.”

But given that the UK is soon to leave the EU, the possibilities for an alliance may be limited. A spokesperson for Best for Britain, a campaign group fighting to keep the UK open to EU membership, told HuffPost UK: “[The tariff] doesn’t bode well for our ability to forge new trade deals outside Europe post Brexit.”

So does Trump’s announcement throw a spanner in the works? Here’s what you need to know:

Leah Millis / Reuters
Trump, handing out sharpies.

The tariffs - 25% on steel and 10% on aluminium - will go into effect in 15 days, although Canada and Mexico will be exempt while negotiations continue over the North America Free Trade Agreement (Nafta).

On Friday a spokesperson for Prime Minister Theresa May said that the UK would work with the EU to seek exemptions from impending tariffs on metals. The EU has said it should be exempt from the tariffs because the bloc is a close ally of the US.

“Tariffs are not the right way to address the problem of global overcapacity,” the spokesman said. “We will work with EU partners to consider the scope for exemptions.”

But given that the UK is soon to leave the EU, the possibilities for an alliance may be limited. A spokesperson for Best for Britain, a campaign group fighting to keep the UK open to EU membership, told HuffPost UK: “[The tariff] doesn’t bode well for our ability to forge new trade deals outside Europe post Brexit.”

So does Trump’s announcement throw a spanner in the works? Here’s what you need to know:

What Is A Trade War?

A trade war is an economic conflict in which tit-for-tat import restrictions are imposed in order to damage the economies of rivals.

Trump’s announcement is potentially the first volley – and if another state or an entity like the EU responds in kind, a full-blown trade war is underway.

The seriousness of this current dispute is underscored by Trump’s decision to justify tariffs under the rubric of national security, which could lead other countries to do the same in order to justify ever-more stringent measures.

Who Usually Wins A Trade War?

In short, nobody.

There hasn’t been an international trade war since the 1930s, in part because American leaders knew their history and were aware of how disastrous the last one was.

Enter Donald Trump.

The internationally-respected Fraser Institute, notes of the “horror story of the United States’ anti-trade Smoot-Hawley Act of 1930” which triggered the last global trade war:

“Most economists believe the result was disastrous. World trade fell by 66% from 1929 to 1934; US exports and imports to and from Europe each also fell by about two-thirds. The causes were varied but one influential study, though it examines trade only through to 1932, estimates that the Smoot-Hawley inspired trade war caused half the decline.

“Benefits? The depression worsened for farmers and workers, the supposed beneficiaries. Smoot and Hawley were defeated in their re-election bids.

“The results would be worse now.”

Will Britain Avoid Tariffs And A Trade War?

This is still up for debate. Trump has exempted Canada and Mexico – and has offered the possibility of excluding other allies. The EU has said it should also be exempt from the tariffs.

In a tweet announcing the move, Trump said he would show “great flexibility and cooperation” to countries that are “real friends and treat us fairly on both trade and the military”.

But given Trump’s track record, this this could mean anything. 

The UK’s Secretary of State for International Trade, Liam Fox pointed out on Thursday night’s Question Time show that British steel was used to supply the US military.

But he also said protectionism “never really works”, adding: “It’s doubly absurd that we should then be caught on an investigation on national security.

“We can deal multilaterally with the overproduction of steel, but this is the wrong way to go about it.”

What Does All This Mean For Brexit?

It’s too early to say for definite, but the outlook isn’t great.

Mary Creagh, Labour MP for Wakefield, said: “Trump’s tariffs prove he’s not going to come to the rescue and save us from the economic damage of Brexit. For him it is, and always will be, ‘America First and everyone else second’ when it comes to trade.

“It shows how weak the arguments of the Brexiters are when they say Trump will give us some sweetheart trade deal: he had the chance to exempt the UK from tariffs tonight and chose not to.

“With someone like Trump in the White House, everyone is entitled to keep an open mind about whether severing our close ties with Europe is the right path for our country.”

Carlos Barria / Reuters
Trump and May at Davos in January.

The PM has pinned much of her hope on the possibility of a UK-US trade deal post-Brexit, but has already revealed her “deep concern” about tariffs.

In a phone call with Donald Trump on Sunday afternoon, the prime minister reacted to a series of tweets sent by the president, in which he attacked “very stupid” trade deals.

James McGrory, executive director at pro-Europe pressure group Open Britain, told HuffPost UK: “The government seems determined to go crawling cap-in-hand to Donald Trump in desperate pursuit of a free trade deal that they hope will bail them out of the economic damage of Brexit.

“But a trade deal with the US won’t come close to compensating for the costs. And there are already many signs that this won’t be as easy as they like to pretend.”

What Does It Mean For British Industry?

One of the indirect consequences of Trump’s actions could be that a lot of cheap Chinese steel is dumped on European markets, instead of being sold to the US.

Whilst this may mitigate effects on consumers, it could be dire news for the UK steel industry.

Trade body UK Steel said the tariffs could have a “profound and detrimental impact” while the Community trade union demanded action to protect British jobs and avoid a “global trade war”.

The group’s director, Gareth Stace, said: “The announcement confirms our fears that the default position is for tariffs to apply across the board outside of Nafta (North American Free Trade Agreement).

“Such tariffs would have a profound and detrimental impact on the UK steel sector, which exported some 350,000 tonnes of products to the US in 2017, over 7% of its total exports.

“The UK sector is in the midst of a fragile recovery following years of considerable turmoil, it would be utterly devastating if this were to be undermined.

Labour MP Stephen Kinnock, whose constituency in south Wales includes the giant Port Talbot steelworks, said Theresa May had “let down” British workers by failing to stand up to the US President.

What Do Other Countries Think?

  • China: producing half the world’s steel, China said it would assess any damage caused by the US move and “firmly defend its legitimate rights and interests,” the country’s Ministry of Commerce said. The tariffs would “seriously impact the normal order of international trade,” it added.
  • The European Union, Brazil and Argentina said they should not be targeted or would seek exemptions, and both Japan and South Korea said they would ask to be made exceptions also.
  • “The cost of a trade war will be tremendous and it will make everyone unhappy,” Junichi Makino, chief economist at SMBC Nikko Securities in Tokyo, said in a report on Friday.