Gov. Asa Hutchinson and other Arkansas trade officials awoke Friday (June 1) to fears of a possible international trade war after President Donald Trump moved forward Thursday with his threat to impose tariffs on countries that dump cheap steel and aluminum imports into the U.S. market.
Citing U.S. national security interest under Section 232 of the Trade Expansion Act of 1962, the U.S. Commerce Department at midnight imposed a 25% and 10% levy, respectively, on steel and aluminum imports from Canada, Mexico, and European Union countries after those three trading partners failed to come to terms on tariffs first announced on March 8.
After EU, Canadian and Mexican officials announced late Thursday they would retaliate against the U.S. with levies on a long-list of American-made products ranging from apples and pork to whiskey and milled rice, concerns were already growing that Arkansas could be caught up in a full-fledged trade war with three of its strongest trade partners.
Gov. Asa Hutchinson — who has led seven overseas trade missions and signed several economic development deals with key trading partners in Europe, Asia, Mexico and China – said he supported the Trump administration’s efforts to negotiate balance trade deals with other countries but expressed reservations about the new tariffs.
“When it comes to our balance of trade, President Trump is right in putting pressure on our allies to respect the United States’ interest in a more balanced and fair trading relationship,” Hutchinson said in a statement to Talk Business & Politics. “However, I have consistently cautioned the President to avoid a trade war that would harm Arkansas exports, including our agricultural commodities, that depend upon world markets.”
Last month, Hutchinson was among a handful of border-state governors to visit the White House and discuss U.S. immigration and trade policy with the president. On Monday, Hutchinson said he will visit with administration officials, including Trade Ambassador Robert Lighthizer, to discuss “my concerns and the need to assure open markets for Arkansas products.”
But some trade experts believe the Trump administration’s trade policy is already hurting the U.S. economy. Ernie Goss, chief economist at Creighton University’s Economic Forecasting Group and the Jack A. MacAllister Chair in Regional Economics, said executives in the agriculture-dependent Midwest economy have already started to reprice export goods ahead of the new tariffs on the Mexico, Canada and the EU.
“The Goldilocks economy, not too hot, not too cold, will be tested in the months ahead as trade skirmishes and potential wars slow growth and contribute to higher prices for inputs such as steel and aluminum,” Goss said. “These higher prices will slow growth and push the Federal Reserve to be more aggressive in raising interest rates in the weeks and months ahead.”
POTENTIAL ARKANSAS ECONOMIC IMPACT
Shortly after President Trump imposed the tariffs, University of Arkansas economist Mervin Jebaraj tweeted that rice, paper products and lawn mowers are among the Arkansas-made goods on the list of items targeted for retaliatory tariffs from Mexico, Canada and the EU. In speaking with Talk Business & Politics about his Twitter post, Jebaraj said is compiling a list of Arkansas products that could be impacted by new trade tariffs and failed trade negotiations with China and NAFTA agreement partners.
“Although Mexico has not published a hard list, both Canada and the EU have a list of every product line that they plan to hit,” said Jebaraj, adding that tariffs on top agriculture products from Arkansas such as cotton, rice and soybeans could impact the state’s agriculture economy by “billions of dollars” annually.
Indirectly, Jebaraj also noted that Arkansas’ manufacturing sector, which has added 3,100 jobs to the state’s economy over the past year, could see a “dampening” effect due to higher steel and aluminum prices related to the new tariffs.
“We have a little bit of a boom in manufacturing here and across the U.S., nothing like what we use to have, but it (trade war) certainly has the prospect of dampening all of that by making it uncompetitive for finished products here in the U.S. that use steel and aluminum,” he said.
The World Trade Center Arkansas and the Arkansas District Export Council said they surveyed state companies earlier this year to determine the potential impact of the tariffs after the administration decided to examine the effect of steel and aluminum imports in March.
“Nearly 90% of companies in this survey said that the tariff impact would result in increasing costs and prices, a negative impact on their business or worker layoffs and a loss of business,” said Melvin Torres, director of western hemisphere trade at the World Trade Center Arkansas.
Torres expressed concerns the new tariffs on key trading allies could also undermine scheduled Commerce Department talks with China and ongoing negotiations on the North American Free Trade Agreement (NAFTA). He added that nearly 350,000 jobs in Arkansas depend on trade, and more than 115,000 of those jobs depend on trade with Canada and Mexico.
“Last year was an extraordinary year for Arkansas exports to NAFTA countries,” added Torres. “Overall, exports to Canada and Mexico have increased by 400% and 700% respectively since NAFTA was implemented in 1994. This latest data release shows that the Arkansas economy depends substantially on NAFTA exports.”
TRADE GROUP REACTION MIXED
Industry trade groups that will be directly impacted by new tariffs offered mixed responses to the new steel and aluminum duties. Thomas Gibson, president and CEO of the American Iron and Steel Institute (AISI), acknowledged that the Section 232 tariffs have been instrumental in bringing the nation’s steel industry back to health.
“(We) thank the president for his actions to ensure a strong American steel sector that is fundamental to our national and economic security,” Gibson said. “The U.S. producers of AISI fully support the administration’s position that any country that is granted an exemption from the tariffs must be subject to a quota, in order to safeguard against the exempt country becoming a conduit for trade diversion, transshipment and import surges.”
The United Steelworkers Union expressed “profound disappointment” that the Trump administration did not give Canada an exemption from the steel and aluminum tariffs.
“The decision not to exempt Canada ignores the fact that Canada’s steel and aluminum exports to the United States are fairly traded and that Canada has shown its willingness to strengthen its laws as well as its cooperation with the United States to fight unfair trade,” the USW said in a statement. “Today’s decision is wrongheaded and erodes the certainty companies need to conduct operations and invest in the future.”
Other trade groups, including soybean and cotton industry officials, expressed concerns that retaliatory tariffs by the EU, Canada and Mexico will hurt farming and agri-related businesses. USA Rice officials said the nation’s rice industry and other export products will be negatively impacted by the administration’s actions, citing statistics that targeted commodities constitute 2.4% of U.S. exports to the EU.
USA Rice officials said “the looming trade war” could mean higher prices overall for U.S. consumers.
“Of course, we’re disappointed that rice is on the retaliation list,” said Carl Brothers, vice president of marketing at Riceland Foods and member of the USA Rice group that manages access to the EU’s Tariff Rate Quota for U.S. milled rice.