President Donald Trump signaled Thursday that he will roll the dice with his single strongest asset: the growing U.S. economy.
After hours of chaos at the White House, Trump told industry executives he will impose tariffs of 25 percent on imported steel and 10 percent on imported aluminum.
The market decline that quickly followed that announcement demonstrated the new uncertainty that the president injected into the outlook of an economic recovery boosted by the new tax cuts.
Import tariffs could boost employment and wages for the roughly 140,000 Americans who work in steel and aluminum production. They include heavy concentrations in the industrial states that tipped the 2016 election to Trump, including Ohio, Pennsylvania and Michigan. The beneficiaries include significant chunks of Trump's blue-collar voter base as he struggles with weak approval ratings and daunting mid-term election forecasts.
But the tariffs risk creating fallout among a Republican-friendly business community and the more affluent, college-educated voters in suburban areas who are likely to decide who controls Congress next year.
Many more Americans work in industries that use steel as a component — including 1 million in automobile manufacturing alone — rather than in steel production itself. In those sectors, import tariffs will raise costs of production, and therefore the prices that consumers pay.
Effects on other industries depend on how U.S. trading partners retaliate. Analysts across the spectrum agree there will be retaliation, perhaps directed at politically relevant targets such as bourbon (produced in Senate Majority Leader Mitch McConnell's Kentucky), motorcycles (in House Speaker Paul Ryan's Wisconsin), and U.S. agricultural products.
The president's announcement drew immediate fire from farm-state Republican Ben Sasse, who derided Trump for proposing "a massive tax increase on American families." The Nebraska Republican added, "You'd expect a policy this bad from a leftist administration, not a supposedly Republican one."
Direct costs of the tariffs, as well as retaliatory steps against the U.S., will likely be modest. Marc Sumerlin, an economic advisor to President George W. Bush, estimates the steel tariffs will cost $12 billion a year. That is roughly 10 percent the size of the 2018 Trump tax cuts — hardly enough to upend the economic outlook by itself.
"The effects would be negative, but the effects would not be large," says Nicholas Lardy, a trade expert at the Peterson Institute for International Economics.
Yet U.S. tariffs hitting Canada and Mexico may also complicate administration efforts to negotiate a revised North American Free Trade Agreement. Trump's move also raises the stakes for the administration's separate, ongoing exploration of much larger and more consequential steps to hit China for stealing U.S. intellectual property.
"China doesn't want a trade war, but escalation cycles can slip out of control," said Robert Zoellick, former president of the World Bank and U.S. trade representative under Bush. He said the tariffs will bring an "increased risk of miscalculation."
More broadly, Zoellick points to a "systemic threat" posed by an array of Trump administration trade moves. From tariffs to abandonment of the Trans-Pacific Partnership to potential withdrawal from NAFTA, they threaten a series of small cuts in global trading arrangements the U.S. has led in building since World War II.
"A slow bleed," Zoellick predicts. "Hard to say when financial markets get nervous."
At least initially, those markets got nervous. The Dow tumbled more than 580 points into the red after Trump spoke.
Douglas Holtz-Eakin, another former Bush economic advisor, has been pegging odds of recession at 20 percent in 2018 and 2019. How much they go up depends on the severity of trade conflict, he says — but they are going up.