What to know about tariff talk

Jill on Money

After announcing new tariffs on imported steel and aluminum, President Donald Trump tweeted, “Trade wars are good,” but economists are not so sure.

While some would argue that Trump is just making good on his campaign promise to level the international trade playing field, others are concerned that the action could hurt the U.S. economy and, more importantly, trigger a trade war that could cause the next global recession.

Here’s what you need to know:

What is a tariff? A tax or duty to be paid on a particular class of imports or exports, in this case, a 25 percent charge on imported steel and a 10 percent one on foreign aluminum. The rationale behind the imposition of tariffs is to raise money or to protect particular industries from competition.

The administration would levy these new tariffs based on national security grounds — the Commerce Department would rely on a rarely-used loophole that allows countries to impose restrictions in times of war.

When would they go into effect? The tariffs will go into effect March 23. Trump signed orders on March 8 imposing the tariffs, but he sought to soften the blow on some allies by exempting Canada and Mexico.

Who are the winners from tariffs? Domestic producers will be the biggest beneficiaries. If their businesses increase enough, these producers could potentially hire more.

Who are the losers? Companies that purchase the imported steel and aluminum are the losers. Included in this group are car manufacturers, equipment makers, construction firms, tool and dye makers, manufacturers of air conditioners and industries that use aluminum for packaging, such as beer companies and canned food makers.

Which countries are most affected? Although the president has criticized China for flooding the market with cheap metals, it is not one of the top 10 exporters of steel to the U.S. There were already targeted tariffs in place, which have dramatically reduced China’s exports. But the Trump administration is considering a trade package including indefinite tariffs, investment restrictions and possible visa restrictions on Chinese travelers, a source told CNBC last week.

According to the Commerce Department’s International Trade Administration, through the third quarter of last year, the U.S. imports steel from more than 110 countries and territories and the top 10 source countries represented 78 percent of the total steel import volume. Canada accounted for the largest share (16 percent), followed by Brazil (13 percent), South Korea at (10 percent) and Mexico and Russia (9 percent each).

How could this lead to a larger international conflict? Affected countries are not going to take tariffs sitting down. JeanClaude Juncker, the president of the European Commission, said before Trump signed the tariff orders that the EU would respond in kind.

U.S. agricultural businesses, which amass a surplus of about $21 billion from worldwide trade, are bracing for retaliation. A joint statement from the National Association of Wheat Growers and U.S. Wheat Associates said: “It is dismaying that the voices of farmers and many other industries were ignored in favor of an industry that is already among the most protected in the country.”

Jill Schlesinger, CFP, is an Emmynominated CBS News business analyst. She welcomes comments and questions at askjill@jillonmoney.com.