Trade Wars: How will the US’ steel tariffs affect Turkey?

On March 1, the White House announced plans to impose a 25 percent tariff on steel imports and 10 percent on aluminum imports. While the content of the bill is yet to be determined (along with U.S. President Donald Trump’s determination to see it through), the initiative has already prompted reactions from both home and abroad.

As the leader of the world’s premier liberal economy, the U.S. is shaking the foundation of free trade with a fateful move that could have global repercussions. We could witness a domino effect in which everyone gets in on the protectionism game in a race to safeguard their own economic national interests.

The timing of Trump’s statements also warrants notice, since they come at a time when U.S. officials are busy negotiating a seventh round of the North American Free Trade Agreement, which brings together the U.S., Canada and Mexico. The latter two just happen to be the leading steel exporters to the U.S. — which itself is the world’s largest importer of the product. The fact that Trump left the door open to tariff exemptions for some countries could be a stick to pressure Ottawa and Mexico City to accept Washington’s terms during the talks.

I had the chance to talk to Gökhan Haymana, the CEO of Hasparlak Çelik, one of the leading manufacturers of bright steel in Turkey, about the possible impact of the decision on Turkey.

While Haymana foresees a price adjustment in the long run, he asserts that chaos is inevitable in the short term. The U.S. decision is highly likely to increase global competition and will have a negative impact on Turkey’s steel industry — at least in the short run — given that Turkey sends 10 percent of its steel exports to the U.S., he said.

“For some time, steel supply and demand has been fairly balanced and earnings were on the rise. The loss of the U.S. market will enhance competition among steel-exporting countries, primarily Canada, Brazil and Mexico. As for the Turkish steel industry, our exports to the U.S. are likely to drop more than 30 percent because 25 percent tariffs will render competition with domestic producers impossible for Turkish companies in the U.S. market,” said Haymana.

As the world’s eighth biggest raw steel producer, Turkey is expected to adapt to the changing circumstances and compensate for the loss of the U.S. market by increasing exports to Europe, the Middle East and North Africa. However, Haymana also warns that it would become harder for Turkey to sell to Europe and North Africa due to rising competition that will reduce steel prices globally. Countries which cannot export to the U.S. will have to turn to their domestic markets to eliminate excess steel supplies. “While we try to eliminate our stocks, other actors such as Europe and Russia will be pushing to enter the Turkish market. In that case, Turkey might consider imposing new regulations to protect domestic steel production,” he said.

On the other hand, Haymana also said an adjustment in steel prices could benefit sectors that use steel, such as construction and the car industry.

Changing the rules of the game while the game is in progress is anything but sporting conduct. Steel exporters are working to contracts signed prior to the new tariffs, meaning the losses with the decision will prompt them to file a complaint at the World Trade Organization.

Experts warn that Trump’s plan might fail to achieve his putative goal — to close the U.S. trade deficit. Instead, they say it could lead to a decrease in quality when there is no free competition. Worse, tariffs might increase the costs for consumers of steel in the U.S., triggering a rise in inflation. Needless to say, retaliation from other countries in the form of tariffs on U.S. exports might inflict considerable damage on U.S. trade. As it is, the European Union has already threatened to slap tariffs on U.S. products, such as Harley Davidson motorcycles, bourbon, orange juice and jeans.

In undermining the liberal world order the U.S. helped to create, Trump is ushering in a world of trade wars in which all sides are to lose.