by JORDAN STRICKLER
Washington, D.C. — Citing harm to farmers, Trump has imposed new tariffs on U.S. steel and aluminum imports on Brazil and Argentina. In an early morning tweet on Dec. 2, Trump said the tariffs, “effective immediately” were necessary because “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”
Weaker currencies in the two countries have been making their crops cheaper than those from the United States, creating a problem for producers already being hit by the trade war against China. Due to trade restrictions, Beijing has been ordering companies to scale back purchases of U.S. farm goods, favoring instead Brazil’s soybean farmers. According to the USDA, Brazilian producers have supplied 77 percent of China’s soybeans in the nine months ended in May, a drastic increase from about 40 percent previously.
In a statement to reporters, Trump said “I gave them a big break on tariffs, but now I’m taking that break off because it’s very unfair to our manufacturers and very unfair to our farmers."
The news caught South American officials off guard as the currency devaluations have come more due to the state of those countries' economies rather than intentional manipulation, according to analysts at ING. “It is not the Brazilian and Argentinean authorities who are responsible for this weakness but market forces,” the ING analysts said in a note to investors. “Argentina, for example, is facing yet another debt problem, which has been scaring international investors away. In Brazil, the central bank has actually been intervening to fight the depreciation of the real.”
In a speech, the head of Brazil’s Central Bank, Roberto Campos Neto, said the Brazilian real is a floating currency and that the central bank does not target a value. Campos Neto states that the real’s recent slide was related to disappointment in an oil auction which failed to attract large investors.
“The decision to tax Brazilian steel as a way of ‘compensating’ the American farmer is a retaliation against Brazil,” said Instituto Aco Brasil, the country’s main steel lobby. “Such a decision ends up hurting the American steelmaking industry itself, which needs semi-finished products exported by Brazil in order to operate its mills.”
The Brazilian real has dropped from $0.2576 to $0.2360 since Jan. 1, a decrease of 8.4 percent, while the Argentine peso declined from $0.0267 to $0.0167 during the same period, a decrease of 37.5 percent.
Brazil is currently grappling with double-digit unemployment, and its economy is headed toward its third straight year of roughly one-percent growth, following two years of recession. Argentina has also found itself in an economic crisis with rampant inflation, deep indebtedness, widespread poverty and a currency which has plunged under the leadership Mauricio Macri. Neither Brazil nor Argentina have been featured in the U.S. Treasury department’s currency report, the official vehicle for designating nations as manipulators.
“For many Brazilians, this smells like revenge for their country’s soybean farmers bonanza – they have benefited enormously from the U.S.-China trade war by replacing U.S. soybeans sales into China,” Kim Catechis, head of investment strategy at Martin Currie, told Reuters.
The U.S. began imposing global tariffs of 25 percent on steel and 10 percent on aluminum in 2018. But before the metals tariffs went into effect, Argentina and Brazil quickly hammered out deals to obtain exemptions, agreeing instead to duty-free quotas. Other economies, including the European Union and China, were subjected to the U.S. duties.
Monica de Bolle, senior fellow at the Peterson Institute for International Economics, tells Reuters that she believed Trump’s tweets were an effort to pressure Brazil and Argentina into helping him with China. “What he actually wants ... I strongly suspect, is ‘we need you to reduce your exports of ag products to China’ because that’s really what’s hurting (U.S.) farmers.”
The move comes as the U.S. and China are having trouble finding middle ground in finalizing a “phase one” trade deal. China has hit U.S. farm goods with tariffs as part of the US-China trade fight over policies related to technology and government subsidies. In the meantime, Chinese buyers have been looking to Brazil and Argentina as an alternative.
Representative John Delaney (D-MD) states that the tariffs will only do more harm than good to farmers. "Farmers were already reeling from the effects of Trump’s trade wars and Chinese tariffs on steel and aluminum, which added to the cost of farm equipment. Now a new blow has been dealt and farmers will experience even higher price tags on the machinery they need to make a living. We need to end the trade wars and expand markets for US agricultural products."
After Canada, Brazil supplied the most steel to the U.S. in the beginning of the year. In 2018, Brazilian steel exports to the U.S. added up to $2.6 billion. Argentina’s production ministry said the country has exported around $520 million in steel and aluminum to the United States so far this year after exporting $700 million last year. According to CNN, last year the steel industry added 2,400 jobs, an increase of just over one percent, however, employment in the industry is still down about 43 percent since 1990.