A Cold Season in International Trade Relations

The United States' decision to impose heavy tariffs on steel and aluminum imports has stirred stock markets across much of the world and faced a wave of protests, especially from countries that are directly harmed by this decision. The U.S. initiative to tighten import regulations cannot be described as surprising, as it aligns with a policy that Donald Trump had outlined for his country's trade relations both before and after entering the White House. He has repeatedly referred to the World Trade Organization as a 'disaster' and considered free trade, at least as defined within this organization, a blow to his country's economic and even security interests. Three influential factors in U.S. trade policy On March 1, the U.S. president announced a 25% tariff on steel imports and a 10% tariff on aluminum imports. With this decision, foreign steel and aluminum will become 25% and 10% more expensive in the U.S. market, respectively, allowing American producers of the same products to defend their positions against competitors under much more favorable conditions. Prior to this, the U.S. president had resorted to protective measures in several areas of international trade, but this is the first time during his presidency that the defense of the country's customs borders against foreign goods takes such a clear and decisive form. Additionally, previous protective measures primarily targeted China, whereas the tariffs imposed on steel and aluminum also affect several emerging economic powers (Brazil, Mexico, and Russia) and traditional U.S. allies, especially Canada, which plays a leading role among steel exporters to the U.S. with a 17% share, and South Korea, which supplies 12% of U.S. steel imports. Several European powers, including Germany, will also suffer from this decision. Three main factors play a key role in the recent decision of the U.S. president (imposing high tariffs on steel and aluminum imports) and, in general, his overall strategy regarding international trade: 1) The first factor is the astronomical trade deficit of the U.S., which has persisted for several decades and has fluctuated between $500 billion and $600 billion per year in recent years. President Trump, along with some of his close associates, believes that a large part of this deficit is due to the non-compliance with international trade laws by countries that benefit from the U.S. market and bear much of the responsibility for the U.S. trade deficit while erecting barriers to the entry of American goods into their territories. From his perspective, Washington must also defend its trade interests and resort to protective initiatives against imports. 2) National security is the second factor that, among other things in the context of steel and aluminum, the U.S. president emphasizes. Relying on this factor (which has been used before, especially during the Cold War), supporters of defending U.S. customs borders argue that the world's leading economic power cannot and should not cede ground in strategic areas to competitors and allow the production of goods as important as steel to cease in the United States due to competition from imported goods. They raise the question: Is America supposed to lose its domestic steel production and become dependent on imports in this vital area? 3) Finally, the third and most important reason for adopting protective decisions, from the perspective of the White House guest, is to defend American jobs. With this decision, Donald Trump hopes to create new job opportunities in the U.S. steel and aluminum industries. Towards a comprehensive trade war? Free market and open border advocates naturally question the credibility of such arguments. From their perspective, closing borders to protect industries that have lost their competitive edge may serve U.S. interests in the short term, but will lead to significant economic losses in the long term. If protective policies had worked in the past to balance foreign trade and save struggling industries, various countries, including the U.S. itself, would not have made such efforts for international trade liberalization. Free trade advocates particularly emphasize the ineffectiveness of protective measures in saving jobs and creating work, pointing to the recent case of imposing heavy tariffs on steel and aluminum. This decision, as mentioned, raises the prices of imported steel and aluminum by 25% and 10%, respectively. In other words, consumers of these imported goods, including the automobile and aerospace industries, will have to pay more for them from now on. The issue is that this heavy cost increases the price of American cars and airplanes, which use these two goods in their production, reducing their competitiveness. This means that while heavy tariffs on steel and aluminum will create some new jobs in these two sectors, automobile and airplane manufacturing plants will lose more jobs due to their diminished competitiveness. In any case, Donald Trump's decision regarding steel and aluminum has sounded the alarm for a tense era in international trade relations. It should not be forgotten that since the end of World War II, the United States has always been the guarantor of agreements overseeing the freedom of trade at the international level. In any case, Donald Trump's decision regarding steel and aluminum has sounded the alarm for a tense era in international trade relations. It should not be forgotten that since the end of World War II, the United States has always been the guarantor of agreements overseeing the freedom of trade at the international level. The General Agreement on Tariffs and Trade (GATT), which paved the way for the liberalization of international trade relations from 1947 until the end of December 1993, owed its credibility to the U.S. The World Trade Organization, which replaced GATT in 1994, could not have progressed without U.S. support. All evidence shows that following the beginning of Donald Trump's presidency, a 180-degree shift has occurred in relations between the U.S. and the World Trade Organization. Of course, Washington had not seemed particularly satisfied with the performance of this organization even before him. However, it appears that the current president is now questioning the theoretical foundations and also the functioning of the World Trade Organization. The possibility of the world's leading economic power exiting this organization is not out of the question. Is the world heading towards a full-blown 'trade war'? This question cannot be answered definitively. Europeans, alongside Canada and several emerging powers, speak of their loyalty to the international trading system and their efforts to preserve it, even if the U.S. exits the World Trade Organization. But is the survival of this organization possible without the presence and support of the U.S.? In this context, the survival of the international trading system, which was established about seventy years ago, faces serious threats. It is evident that America's Western allies are already preparing to confront such a possibility. The European Union's Commission, which is responsible for the trade policy of this bloc, has threatened that it will not remain idle in the face of the U.S. decision regarding steel and aluminum and will not only file a complaint with the World Trade Organization's dispute resolution body but will also implement retaliatory measures against Washington. Canada is also preparing to respond in kind.