“Smoot-Hawley Tariff was an act implementing protectionist trade policies sponsored by Senator Reed Smoot and Representative Willis C. Hawley and was signed into law on June 17, 1930. The act raised U.S. tariffs on over 20,000 imported goods.”
. . . Wikipedia
“In March 2002, President George W. Bush imposed a 30% tariff on Chinese steel. The results were chaotic. In a report put out by Consuming Industries Trade Action Coalitionin February of that year, the coalition found the tariffs against China boosted the overall prices of steel and cost the U.S. 200,000 jobs in businesses that buy steel, representing $4 billion in lost wages.”
. . . Foundation for Economic Education (3/2/18)
George Wilhelm Friedrich Hegel once stated, “We learn from history that we do not learn from history,” and that quote leaped into our head last Friday. At the time we were speaking to a few hundred investors at a conference. In the Q&A we said the announcement on tariffs on steel and aluminum had been delayed when someone in the audience piped up and said, “The President just imposed them.” Now while this is certainly not like Smoot-Hawley’s tariff on 20,000 imported goods, it is a step in the wrong direction, in our opinion. As The New York Times’ Neal Irwin wrote, “A signal about the willingness of the President to ignore his most sober-minded advisers and put the global economy at risk to achieve his goal of better terms for American trade." Armed with that thought we dialed up some of our contacts inside the D.C. Beltway and what we heard was discomforting.
The D.C. grapevine has it that the Republicans on The Hill are furious about the tariffs. More importantly, we heard repeatedly that national security advisor Lt. General H.R. McMaster is likely going to leave. Even more shocking is the rumor that Gary Cohn, the Director of the National Economic Council and chief advisor to the President, is probably going to leave after getting overruled on the tariff question. Ladies and gentlemen, if those two leave, can Chief of Staff General Kelly be far behind? Importantly, if they all leave there will be nobody left to say “no” to the President! Again, as Mr. Irwin wrote, “A signal about the willingness of the president to ignore his most sober-minded advisers.”
So what’s the big deal about steel and aluminum? Well, the world’s global steel production is about 1.7 trillion metric tonnes. China is by far the largest producer, accounting for an eye-popping 49% of that 1.7 trillion metric tonnes. As a sidebar, the U.S. produces only 5%. Not surprisingly, the U.S. is the world’s largest importer of steel, at a run rate of 29 billion metric tonnes. However, Canada and Mexico account for much of those steel imports. Ben May, a director at Oxford Economics, said that 88% of Canadian steel exports went to the U.S. in 2016. The same is true for nearly three-quarters of Mexican steel. And there is what we consider to be the real reason for the tariffs. As we stated on CNBC last Friday, “We think the tariffs are a warning shot to Canada and Mexico given the stalled NAFTA talks. And if the President pulls the U.S. out of NAFTA it is not going to be pretty.”