In a protectionist double-whammy, tariffs will make steel for infrastructure more expensive, while a crackdown on waivers will make U.S. steel mandatory.
President Donald Trump still wants to build a wall along the southern border with Mexico. At times, he’s nearly taken a first step toward that goal, most recently during bipartisan negotiations over immigration. Democrats in Congress offered to fund a border wall in exchange for protections for immigrants living in the U.S., but the deal collapsed without the president’s support.
On Thursday, Trump shocked the world by unilaterally announcing tariffs on steel and aluminum. In the name of national security—authorized by a Cold War power known as Section 232—Trump declared his plans to impose a 25 percent tariff on steel and a 10 percent tariff on aluminum. If he proceeds, these tariffs will rewrite commodities markets, drive up prices for steel importers, and shake up an already stirred White House economics team.
Another one of many wide-reaching changes: Trump may have just put his own wall out of reach.
The president’s protectionist instinct runs counter to the facts on the ground—or rather, the facts in the ground. The U.S. doesn’t produce steel at the price necessary to build a massive wall spanning thousands of miles at an affordable cost. “Sweeping import restrictions could have a significant impact on the steel and aluminum supply markets,” reads a report by analysts at K&L Gates, a law firm with a focus on global markets.
The proposed tariffs come hot on the heels of other aggressive “Buy American” policies established by the Trump administration. Last April, Trump ordered federal agencies to prioritize local purchases in federal procurements. That executive order also cracked down on various waivers that allow federal agencies to bypass local procurements for certain operations. Trump’s message was specific: When federal agencies build, they need to use steel, aluminum, iron, and cement made in America.
Price is one of the waivers that came up for debate. “Federal agencies may waive domestic procurement requirements if it is in the ‘public interest,’ including where there is lack of availability of domestically produced items or if use of domestic materials would increase the costs of projects by 25 percent or more,” reads a K&L Gates paper on procurement rules. Trump’s crackdown called on federal agencies to analyze whether price waivers were ultimately necessary because, as Trump might say, U.S. steel is treated so very, very unfairly.
This protectionist swing is a double-whammy for the wall: Trump’s tariffs will make steel more expensive, while Trump’s crackdown on waivers will make U.S. steel mandatory. And it’s not just the wall, either. As international trade consultant Jean Heilman Grier writes, the full implementation of the Buy American order could expand procurement requirements to state and even local infrastructure projects.
A report on Buy American from Commerce Secretary Wilbur Ross was due on the president’s desk in November, but so far, that report has not been produced publicly. (Grier notes that it is not even clear whether it was ever submitted.) In January, a bipartisan group of senators introduced the BuyAmerican.gov Act of 2018, maybe the first time a law has ever been named for a URL. The bill would tighten the use of waivers by federal agencies and require them to track them publicly.
With the cost, composition, and dimensions of the proposed border wall still unknown, it’s impossible to know whether new steel mandates will raise the price a little or a lot. The same goes for things like cars and engines. Domestic steel producers are nevertheless overjoyed. U.S. Steel CEO Dave Burritt, who joined Trump in the Cabinet Room for the announcement, said that tariffs would return a “level playing field.” Earlier this week, in The Wall Street Journal, Burritt wrote, “We are—and have been—in a trade war for decades and are losing vital capabilities to keep America strong and safe.”
But the consultancy group Wood Mackenzie just issued a report saying that the measures would not work for the U.S. steel industry. The mood at the American Institute for International Steel and the International Rebar Exports and Producers Association could be described as a “this is fine” level of understated panic.
No problemo for Trump, who tweeted on Friday that “trade wars are good, and easy to win.” Experts disagree, and the most damaging prospects for the economy are what the experts can’t predict: retaliation from international trade partners, or the ripple effects throughout the global trade system. But according to reports, the president did not consult many experts beyond Commerce Secretary Wilbur Ross. Instead, he reportedly issued his declaration in a spirit of frustration and isolation. Trump may be walling himself in. It won’t help him get a wall built.