Thread by @ChadBown

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ECONOMICS and HISTORY

Trump has decided to convert his import quotas on Brazil and Argentina to 25% tariffs on steel and 10% tariff on aluminum.

There is a lot to parse through here, some of it is counter-intuitive...

https://twitter.com/realDonaldTrump/status/1201455858636472320

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ECONOMICS

First, we have to be clear about the COUNTERFACTUAL.

The status quo was NOT the Trump giving free trade to Argentina/Brazil steel and aluminum

Argentina/Brazil faced binding import quotas limiting the volume of steel and aluminum each could sell in the US market

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With the steel and aluminum quotas, there was NO process for the US to sell licenses to earn revenue from foreigners getting access to the US market.

By now, Argentine and Brazilian firms will have figured out how to RESTRAIN their steel/aluminum exports to fill the quota.

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This is then essentially what economists call a Voluntary Export Restraint, or VER

This form of VER/quota is a collusive-type outcome.

Argentina/Brazil export less steel and aluminum VOLUME to the US (relative to free trade).

But they enjoy the benefit of HIGHER PRICES

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Different from a US tariff, the higher price paid by the US customer flows as a benefit to the Argentine/Brazilian side - they receive the benefit of the higher US price.

(higher than for their sales to other markets)

For them, that outcome was not "as bad" as a US tariff

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Trump switching to a tariff on Argentina/Brazil may be slightly less damaging to the US economy RELATIVE TO a quota/VER (depending on other factors)

• US will collect tariff revenue on those transactions
• If the prior quota was binding, there could be additional volume

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TO BE CLEAR, I am saying the US could better off with a tariff relative to a QUOTA/VER (the prior situation)

I am NOT saying the US would be better off with a steel and aluminum tariff on Argentina and Brazil relative to FREE TRADE

BUT furthermore...

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All of this has not yet taken into consideration that Argentina and Brazil could impose counter-tariffs against US exports, which would add MORE costs to the US side.

Argentina and Brazil did NOT impose counter-tariffs in 2018 because they struck the collusive quota/VER deal

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Argentina and Brazil could now respond similar to China, EU, Turkey, Russia, and India - as well and Canada and Mexico** - which retaliated with COUNTER-tariffs on US exports

**Canada and Mexico removed their tariffs in May 2019 when Trump lifted his tariffs on their exports

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Trump's tariff action today on steel/aluminum from Argentina and Brazil in response to alleged currency movements is NOT THE FIRST TIME he has used this justification

In August 2018, he increased his tariff on Turkey's steel exports from 25 to 50%

https://twitter.com/realDonaldTrump/status/1027899286586109955?s=20

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There is A LOT of economics and history to chew on here.

But to keep track of all of the FACTS, check out and bookmark our Trade War Timeline

(which has a special section dedicated to Trump's steel and aluminum tariff saga)

ENDS/

piie.com/blogs/trade-in…