Trade war over steel will be counterproductive, even for the US

AFTER weeks of debate between economic nationalists and the free traders at the White House, Trump administration officials are expected to decide this week if they plan to impose restrictions on steel imports that could take the form of either new tariffs or import quotas, or most likely, something in between.

Employing a somewhat obscure section of the Trade Expansion Act of 1962, US President Donald Trump issued four months ago an executive order requesting the Department of Commerce to investigate whether steel imports constituted a threat to national security. After the Commerce Department issues its findings and recommendations, Mr Trump would have to decide on whether to placate his anti-globalisation electoral base by embracing a protectionist approach or whether to respond to the pressure from US economic partners and avoid a new and costly trade war. The United States - the world's largest importer of steel - has already adopted in recent years anti-dumping steps to reduce imports from China; and Canada, South Korea, Germany and Brazil have now become its major sources of steel imports.

The notion that steel imports threaten US national security seems to be overstated, considering that only 3 per cent of US steel production goes to defence and homeland security. At the same time, engaging in trade wars with military allies such as South Korea, Germany and Canada could actually harm American strategic interests. It's not clear if and how many steel jobs would be saved by restricting imports. But tariffs on steel imports could end up raising costs for US manufacturers that rely on imported steel inputs. That could raise costs for American consumers who buy their products and lead to job losses in other sectors.