Trump's Steel Tariff Could Affect Defense Shipbuilders

On Friday, the governor of Virginia warned that President Donald Trump's plan to impose tariffs on steel imports could hurt defense shipyards like Newport News, which is building America's next class of aircraft carriers. President Trump surprised his party and his staff on Thursday by announcing that he would move ahead with a 25 percent tariff on steel imports and a 10 percent tariff on aluminum.

"The danger is you could protect the domestic steel industry, but the industries that use steel to produce, employ multiple more people," said Virginia Gov. Tim Kaine (D) at a news conference. "So, the shipyard, auto manufacturers and others are going to see higher costs."

"If you raise the tariffs on steel, steel would be more expensive and the products that use steel, automobiles, ships would be more expensive," added Rep. Bobby Scott (D-VA). "It's all Navy ships. If the costs go up, the taxpayers will have to pay more."

Seth Cropsey, director of the Hudson Institute's Center for American Seapower and a top Navy official during the Reagan administration, had a similar warning. "If we head down the road of protectionism, then yes, this will certainly affect the cost of American defense goods and that's a matter of concern," he told CNBC on Friday. 

Imports from allies

While the president has singled out Chinese imports as a particular source of concern, steel brought directly from China accounts for about two percent of American imports. The nation most affected will be Canada, which sells the U.S. more steel than any other trading partner (and buys even more than it sells). 

Canada's foreign affairs minister Chrystia Freeland responded to Trump's declaration by noting that the tariffs could have a negative impact on national defense. "As a key NORAD and NATO ally, and as the number one customer of American steel, Canada would view any trade restrictions on Canadian steel and aluminum as absolutely unacceptable," Freeland said in a statement. "The steel and aluminum industry is highly integrated and supports critical North American manufacturing supply chains."

In a memo in the process leading up to the announcement, U.S. secretary of defense James Mattis called for "targeted" tariffs that would not affect allied nations like Canada, Germany, South Korea and Japan - all top-ten steel exporters to the U.S. "DoD continues to be concerned about the negative impact on our key allies regarding the recommended [tariffs]," he commented. 

President Trump explained his announcement in an early-morning tweet on Friday. "We must protect our country and our workers. Our steel industry is in bad shape. If you don't have steel, you don't have a country!" he wrote (caps removed). "When a country Taxes our products coming in at, say, 50%, and we Tax the same product coming into our country at zero, not fair or smart. We will soon be starting reciprocal taxes so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!"