Treasury Secretary Steven Mnuchin said he recognizes the risk of retaliation against the U.S. for steel and aluminum tariffs the Trump administration plans to impose but still believes the move will benefit American workers.
“If you want to negotiate things that are good for us, you have to be prepared for the consequences,” the Treasury chief said Wednesday in a phone interview with Bloomberg News. “Our objective is not to create a trade war. Our objective is to make sure U.S. companies and workers are treated fairly.”
President Donald Trump’s call last week for tariffs of 25 percent on steel and 10 percent on aluminum imports has stirred fears of a global trade fight. A formal announcement could come as soon as Thursday.
The European Union this week threatened retaliatory levies on politically sensitive U.S. goods, and China last week sent an economic envoy seeking to clarify U.S. demands. Republican lawmakers are pressuring Trump to at least curtail the tariffs by targeting a limited number of countries or specific categories of steel and aluminum in order to ease the impact on American manufacturers that depend on the metals.
Mnuchin said no one should be surprised at the tariffs. Trump has made renegotiating trade deals and getting better access to Chinese markets for American companies a pillar of his economic agenda since his candidacy.
While Mnuchin said that the tariffs will “definitely” be rolled out soon, both he and Commerce Secretary Wilbur Ross on Wednesday signaled the administration is open to exempting countries from the tariffs, including Mexico and Canada, depending on the result of ongoing Nafta negotiations.
“We have a mechanism to carve out countries,” Mnuchin said earlier Wednesday in a Fox Business interview with Maria Bartiromo.
Imposing tariffs would open a new chapter in the long-running tension between Trump’s growth-boosting policies -- such as tax cuts and reduced regulation -- and his trade and immigration proposals, which most economists consider a risk to growth.
The tariffs could reduce U.S. growth by as much as 0.2 percentage point this year, and the economy would sustain more damage if trading partners retaliate, with the greatest risk coming escalating duties, Barclays Plc economists said.
However Mnuchin minimized the risk. “We’re comfortable that we’re going to manage through this so that it is not detrimental to our growth projections,” he said.
Moody’s Analytics Inc. forecast the tariffs would erode the competitiveness of a wide range of U.S. manufacturing companies including in the transportation, construction and heavy machinery sectors. Moody’s also forecast the cost of the tariffs would be passed on to consumers, raising inflationary pressure.
Higher inflation resulting from tariffs and follow-up actions could also push central bankers to raise interest rates at a faster pace.
Even without the impact of tariffs, reaching Trump’s goal of a sustained 3 percent growth pace will be a challenge. Tax cuts will underpin demand as consumer spending and business investment remains strong. But the pace of household purchases -- which account for about 70 percent of the economy -- probably won’t repeat its recent performance anytime soon amid still-modest wage gains and higher debt loads.
Ongoing depreciation of the dollar would make it difficult to rein in the trade deficit, which Trump has pledged to shrink.
Mnuchin faced tough questions from House Republicans during the hearing Tuesday. Representative Kevin Yoder of Kansas remarked that nearly half a million of his constituents’ jobs are supported by trade, but that trade wars and tariffs will “negatively impact” the local economy.
“Chinese retaliatory action poses a direct threat to their livelihood,” Yoder said.
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