President Donald Trump said he would impose tariffs, effective immediately, on all steel and aluminum shipped into the United States from Brazil and Argentina.
“Brazil and Argentina have been presiding over a massive devaluation of their currencies. which is not good for our farmers,” Trump said in Monday morning tweet. He then directed his attention to the Federal Reserve, saying the central bank should “act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our [manufacturers] & farmers to fairly export their goods. Lower Rates & Loosen – Fed!”
The tariffs took aim at one of the most vital industries in Brazil at a particularly vulnerable moment. Unemployment is above 10 percent, and the economy has stalled. The steel industry, long one of the nation’s economic engines, has been looking increasingly wobbly as well, slashing growth projections earlier this year.
Brazilian steel exports to the U.S. accounted for roughly $2.6 billion last year – making the United States one of Brazil’s biggest markets for steel – and analysts expected the tariffs to be painful.
In Argentina, where steel and aluminum exports represent roughly $700 million, the unexpected news comes as the nation is undergoing a transition of power. If the tariffs persist, they will be one of the earliest diplomatic tests to face the incoming presidency of Alberto Fernández, a leftist politician who will take office within a week. Argentina’s troubles have affected Brazil’s economy, though it’s unclear what actions triggered the announcement from Trump.
In Brazil, the tariffs announcement stunned officials, who for nearly a year have sought to develop closer ties with the United States, particularly Brazilian President Jair Bolsonaro. Nicknamed by some as the “Trump of the Tropics,” Bolsonaro has repeatedly praised Trump, mimicked his rhetoric, and even tried to install his son as the ambassador to the United States.
But on Monday, Bolsonaro appeared taken by surprise.
“I’m going to speak with Paulo Guedes,” he told several reporters outside the presidential palace, referring to the country’s finance minister. “Aluminum? I’m going to speak with Paulo Guedes now … If necessary, I’ll call Trump. I have an open channel with him.”
Trump’s tweets also referenced Wall Street’s gains – “U.S. Markets are up as much as 21% since the announcement of Tariffs on 3/1/2018,” he wrote – suggesting he’s not too concerned about a market blowback if he ratchets up trade tensions.
David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, said the markets have been hopeful that the trade war may soon end, making the timing of Trump’s announcement all the more surprising.
“Rattling the trade war saber, which may play well with his base, seems to me like it is likely to hurt the markets,” Wessel said.
By midmorning Monday, the major U.S. indexes were in negative territory: The Dow Jones Industrial Average was off roughly 0.5 percent; the Standard & Poor’s 500 was 0.7 percent in the red; and the Nasdaq Composite was down roughly 1.2 percent.
Trump also appeared to push for a two-pronged approach to weakening the U.S. dollar: through action by the Fed and by dealing hits to foreign countries.”The president doesn’t seem to see any contradiction between his frequent assertions that the U.S. is the strongest economy in the world, and his insistence that in such circumstances, the U.S. dollar should be going down,” Wessel said.
The Treasury Department twice each year issues a report that looks at the currency policies of all major economies to determine whether any nation is improperly manipulating its currency. This is at least the second time that Trump has made a declaration about another nation’s policies that did not mesh with his own Treasury Department’s formal assessment.
In August, he declared that China had been manipulating its currency, forcing Treasury Secretary Steven Mnuchin to scramble and assert the same even though Treasury had not found China to be manipulating its currency in its official evaluation. And in the latest report, released in May, Treasury did not allege Brazil or Argentina had done anything improper in handling their currencies. Instead, that report said that the U.S. dollar had strengthened against the currencies of Brazil and India “as external pressures on many emerging markets intensified in the midst of crises in Argentina and Turkey.”
Monday’s directive marks the latest twist in Trump’s trade war, which has become a major fixture of his foreign and economic policies. Trump has said he looked to clinch a trade deal with China this year, but those talks have unraveled on multiple occasions. Trump is now focused on a partial trade deal, which he has referred to as “Phase One” and which would include large purchases of U.S. farm products by Beijing.
The next potential deadline that could bring the United States and China to the table comes Dec. 15, when Trump’s next round of tariffs is scheduled to affect about $160 billion in Chinese goods. A deal could make those levies disappear, according to sources familiar with the talks. Earlier in Trump’s presidency, in March 2018, top steel suppliers including Brazil, South Korea and Japan complained that the Office of the U.S. Trade Representative had yet to establish a process for countries to apply for tariff exemptions just days before tariffs on foreign-made steel and aluminum were scheduled to take effect. At the time, Brazil was the No. 2 steel supplier to the United States. In 2017, the U.S. imported 34.6 million metric tons of steel from 85 countries.
Trump imposed the steel and aluminum tariffs after his Commerce Department found that a large amount of these imports posed a threat to the national security of the United States. Trump has tried to use these and other tariffs as leverage against other countries to change their trade policies, with mixed success.
In June, Trump threatened to impose tariffs on Mexican goods and even shut down the U.S. border if more wasn’t done to crack down on migrant crossings. This did prompt Mexico to negotiate and make some changes, a response White House officials felt validated the hardball tactics.
Initially, the steel and aluminum tariffs Trump imposed seemed to lead to a brief revival of the domestic steel industry, leading companies to expand hiring as prices increased. But there are signs that this renaissance was short-lived, and some plants have begun cutting workers amid a slump in stock values and steel prices.
Trump and Bolsonaro have shared a particular bond that spans their shared antagonism of the news media to massive fires in the Amazon rainforest. Recently, Trump pledged to take Brazil’s side as Bolsonaro said the powerful Group of Seven countries were criticizing his government’s response to the fires. When French President Emmanuel Macron announced in August that G-7 member nations had approved a $22 million emergency aid package to help combat the fires, the Trump administration did not give its support, saying that any solution should be done in consultation with Brazil.
Trump later praised Bolsonaro for “working very hard on the Amazon fires and in all respects doing a great job for the people of Brazil.”
Source: Rachel Siegel and Terrence McCoy, Agweek
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