Trump tariffs on steel would hit China -- and the entire global trading system

Asian Stock Markets

If President Trump decides to impose steep tariffs on steel, it would be a direct shot at Beijing.

But the list of countries that would be affected doesn't end with China. Limiting or taxing steel imports could also hit Canada, Brazil, South Korea, and Russia — and the implications could ripple throughout the entire trading system. 

On Trump's desk are a broad range of trade options meant to bolster the domestic steel industry. The recommendations sent from the Commerce Department include across-the-board tariffs, targeting select nations with even higher tariffs and capping how much steel comes into the country. 

The president has until April to choose any one of these options, a combination of them or entirely different trade actions. He has a similar set of recommendations on aluminum

In the past, the president's rhetoric on steel has focused on China. Since starting his run for office, Trump has laid into China for sending excess cheap steel into the global market, which he says makes it impossible for American steel companies to compete. 

It's true that China, the world's top exporter of steel, is a major source of a global supply glut that has driven down prices. American and European steelmakers have made complaints echoing Trump's criticism for years.

However, China is not the top country from which the United States imports steel. In fact, it's not even in the top 10. 

Due to the trade penalties the United States has slapped on Chinese steel during past administrations, China sends much less steel to the U.S. than it used to. 

The United States imports most of its steel — 16% — from Canada. It imports 13% from Brazil, 10% from South Korea, 9% from Mexico and 9% from Russia, according to a Department of Commerce report from December 2017.

That means that a 24% tariff on steel imports from all countries — one of the proposals on the table — would also have a major impact across the globe.

Trade experts say that if Trump goes that route, even U.S. allies like Canada, South Korea, Mexico could be willing to retaliate, sticking tariffs of their own on U.S. exports like agricultural products, or picking non-U.S. goods — like Airbus planes over Boeing models. 

China would still feel the pain from protective U.S. measures. A lot of China's steel makes its way to the United States indirectly.

Even if Trump does not decide to enact an across-the-board tariff, the other options he's considering will also resonate globally.

That's because the Commerce Department is advising Trump to take action under a little known trade law from 1962.

If Trump invokes Section 232 of the Trade Expansion Act, as is recommended, that means he believes steel imports are hurting national security.

Experts say that rationale is flimsy, and isn't likely to hold under the rules established by the World Trade Organization.

In fact, it could be deemed such a flagrant violation of the rules that it could open the door for tit-for-tat responses from other countries, according to Matt Gold, an international trade law expert at Fordham University.