In a surprise move just before Christmas, President Trump reinstated tariffs on imports of steel and aluminum from Brazil and Argentina. It’s unclear whether the move will have much effect on holiday shopping, but it’s undeniable that it will negatively affect US businesses that rely on steel and aluminum imports.
Trump explained that his reasoning for reinstating the tariffs was due to massive devaluation of the Brazilian real and the Argentine peso. He also urged the Federal Reserve to loosen its monetary policy so that other countries would not be able to competitively devalue their currencies against the dollar.
Trump’s actions caught both Argentine and Brazil and US importers by surprise, which will probably cause shocks throughout the economy as companies rush to source other sources of metal. The tariffs on Brazil also risk alienating one of Trump’s sole allies in Brazil, which could come back to bite him in the future. Brazilian President Jair Bolsonaro is known as the “Trump of Brazil” and, on a continent that seems to be moving to the left, Trump needs all the allies he can get.
Argentina is one of those countries that appears to be moving to the left once again, with its new government set to continue the same failed policies of leftist predecessors. The outgoing conservative government was never able to bring the Argentine central bank in line, so Argentina’s peso continues to lose value against the dollar.
President Trump needs to be careful what he wishes for, as both Brazil and Argentina have histories of severe inflation and outright hyperinflation. Asking the Federal Reserve to mimic the disastrous monetary policies of those countries in order to keep them from gaining arguably minuscule advantages in international trade is risking severe long-term damage to the US economy for only a minor short-term gain. While it’s understandable that Trump wants to keep the US economic boom going for as long as possible so that he’ll stand a better chance of re-election in 2020, it’s not worth sinking the US economy to do that.
