'I'm pretty well pissed off': Strategic or not, here's how Trump's tariffs on U.S. allies could backfire

Blake Hurst can't help but laugh. The future of his family farm in northwest Missouri looks that grim.

"It's gonna be painful," he said, hours before new tariffs on Canadian steel and aluminum kicked in at midnight on Friday. "What else you gonna do?"

Hurst's first concerns were about how U.S. President Donald Trump's threats to pull out of the North American Free Trade Agreement might further imperil his livelihood.

Then came Trump's proclamation last March that he would impose sweeping tariffs — 25 per cent on foreign steel and 10 per cent on foreign aluminum — in a move seen as taking aim at China for dumping cheap metal into the U.S. market.

For a while, at least, there was some reprieve. The European Union, Canada and Mexico were exempt from the tariffs, keeping Hurst hopeful the foreign economies he relies on wouldn't retaliate with punishing duties against the U.S.

No such luck.

Mexico, Europe and Canada announced retaliatory tariffs on Thursday after the U.S. moved to slap on new tariffs on steel and aluminum, escalating a trade dispute between the Americans and their top trading partners.

Hurst, 61, sighed on the phone while speaking to CBC News.

"Our three biggest markets for farm exports are Canada, Mexico and China," he said. "For our soybeans, by far the biggest is China. And a lot of our corn goes to Mexico."

'National security' justification

In justifying the tariffs in March, Trump invoked "national security," reasoning that the protection of American aluminum and steel was "vital" for "the bedrock of our defence industrial base."

Critics heard a flimsy pretext for imposing metal tariffs, arguing Trump was merely exploiting a loophole in World Trade Organization rules that allows trade restrictions for the purposes of national security.

Ahead of the midterm elections coming in November, Trump could also be targeting a bloc of anti-free trade voters championing protectionism.

"Most economists would say tariffs, generally, are not a good idea because of the deadweight loss they impose and the threats of retaliations," said Saumitra Jha, who lectures on political economy at Stanford University.

"This might be very beneficial for some key constituencies and electoral districts, but you're talking about very specific producers and commodities benefiting."

If there is a political rationale, many economists believe it's that Trump is playing to the farm vote, as well as an industrial manufacturing base. Pennsylvania steelworkers who voted for Trump might be pleased if they believe the president is standing up for them against cheap foreign steel flooding the domestic market.

"It's a small group, relative to the general problem of tariffs, retaliations, downstream things and costs of everything going up," Jha said.

Why Trump would go after Canada, the No. 1 exporter of steel and aluminum to the U.S., isn't obvious.

Douglas Porter, chief economist at the Bank of Montreal, told the Los Angeles Times in March that Canada was "flabbergasted" to be portrayed as "trade villains," considering Canada supplied $7 billion of aluminum and $4 billion of steel to the U.S. in 2017.

For its part, the American Farm Bureau Federation — which bills itself as the "voice of agriculture" — fears a trade dispute. More than 75 per cent of the rural farm belt voted for Trump in 2016, according to the Washington Post.

Farmers like Hurst, who is the president of the Missouri Farm Bureau, backed Trump then. But Hurst said his support is "shakier" now than it was six months ago.

"I'm pretty well pissed off. Economically, this is almost certain to backfire. But I'm not totally sure it's not going to be politically popular."

Beijing has warned it may slap 25 per cent on soybean imports, which would severely harm Hurst's business.

Ottawa's countermeasures for now will be dollar-for-dollar on steel and aluminum from the States, as well as duties on American maple syrup, soy sauce, coffee and other products.

China had already raised import duties on U.S. pork, tailored to strike pork producers in Trump-favouring red states such as North Carolina and Indiana.

Dave Salmonsen, the Farm Bureau's senior director for congressional relations, scanned Canada's new tariffs list. Reciting it aloud Thursday, he stopped on another political pressure point for Trump.

"Yogurt, coffee, prepared meats, candies … whiskies!" he exclaimed. "Oh boy, Kentucky and Tennessee won't like that at all."

Kentucky is the home state of Republican Senate Majority Leader Mitch McConnell, who has warned about a "slippery slope" of trade swipes in retaliation for Trump's steel and aluminum tariffs.

Orange juice is also on Canada's duties list, which could potentially harm swing-state Florida, won by Trump in 2016.

European leaders have suggested cranberries and Harley Davidson motorcycles might be subject to higher duties. Both are major products from Wisconsin, the home state of Republican House Speaker Paul Ryan.

In March, a group of 107 House Republicans urged Trump to reconsider the sweeping tariffs, arguing they would hurt American jobs.

Even so, supporters of the tariffs, like Mike Bless, CEO of one of the largest U.S. aluminum producers, Century Aluminum, are confident they'll win out.

"President Trump's decisive action protects thousands of American aluminum workers and puts U.S. national security first," Bless said in an email statement, adding his industry is on track to hike production by 60 per cent by year's end.

'You lose more jobs than you gain'

When the tariffs were first announced, Bless said he expected to hire 300 workers.

To Ben Zycher, a resident scholar at the Washington think-tank the American Enterprise Institute, those benefits look to be short-sighted.

"There's no question you lose more jobs than you gain," he said. "That's simply the reality of any kind of protectionist move. Protectionism makes the economy smaller by imposing artificial costs."

Zycher noted it's possible the political dynamics are such that "the jobs gained are more important politically to the Trump administration" than jobs lost in other sectors.

Trump's national security rationale isn't convincing to Zycher. In fact, he said, "the steel tariffs are likely to harm other sectors that are also important for national security."

Take, for example, the energy sector — another arguably critical industry. It relies on cheaper foreign steel to operate oilfields. High-pressure pipelines are often made of special steels not currently produced in the U.S.

Economists expect Trump's "national security" rationale will be challenged before the WTO.

Back on his farm, Hurst is now worried about steel prices rising. While his industry braces for retaliatory tariffs, costs will also increase for steel-made tractors, combines, greenhouses and grain tanks.

He said he can only hope Trump's moves somehow pay off.

"As far as the Canadian and Mexican tariffs, I can't even understand what he hopes to gain by that," he said. "You have to hope there's a negotiating strategy. But I think patience is starting to wear thin."