Founder Editor in Chief: Octavian-Dragomir Jora ISSN (print) 2537 - 2610
ISSN (online) 2558 - 8206
Contact Editorial Team RAFPEC The Idea
How the Latest Trump Tariffs Will Affect Romania

How the Latest Trump Tariffs Will Affect Romania

No. 7-8, Sep.-Dec. 2017 » Bridging News

On March 1st, US President Donald Trump announced that his administration will unilaterally introduce new tariffs on steel and aluminum imports in the United States of America. Officially motivated by national security concerns under the World Trade Organisation (WTO) rules, the announcement follows a similar decision to unilaterally introduce new tariffs on imported solar panels and washing machines, for reasons of unfair competition, taken at the end of January. Along with pressures for a redrawing of the North-American Free Trade Agreement (NAFTA) with Mexico and Canada and the retreat from the Trans-Pacific Partnership (TPP), the decision constitutes the most palpable expression to date of the United States’ new protectionist trade policy, to which Donald Trump alluded to since he was campaigning on an “America first” platform for the White House back in 2016. But unlike the solar panels and washing machines tariffs of a month and a half ago, which targeted primarily Chinese, South Korean and other Asian economies, the new steel and aluminum tariffs risk triggering a full-scale trade war with the European Union’s – still – 28 nations trade block, Romania included.

The metal industry is among the country’s leading exports, although its overall share has constantly diminished in the last decade. It fell from second place to fifth place during this period and lost about 10 pp in favor of other industries. Romania retains important production capacities in both the steel and the aluminum industry, the two products the US President has chosen to protect with tariffs of 25% and 10% respectively, but it barely trades with the United States. This, however, does not mean that the Romanian metal industry will be unaffected by the looming trade war.

Although the output of the Romanian subsidiaries does not directly compete for the American market, the tariffs will trigger unpredictable production shifts inside the multinational corporations' international portfolio of production facilities.

The Romanian steel industry is dominated by ArcelorMittal Corporation, the world’s largest, headquartered in Luxembourg, which owns the Galați steel mills and several plants around the country, while the locally listed aluminum producer ALRO Slatina is owned by the Vimetco Corporation, a globally present Dutch-registered company listed on the London Stock Exchange and owned by Russian magnate Vitali Matsitski. The tariffs will affect these global corporations’ supply chains and integrated business processes. ArcelorMittal, for instance, owns steel mills not only in Europe and Asia, but also in the American industrial heartland of Pennsylvania, home to critical voters – battered by recession and disillusioned by globalization – on whose behalf Donald Trump enacted the tariffs in the first place. Although the output of the Romanian subsidiary of ArcelorMittal does not compete directly for the American market, the tariffs will trigger unpredictable production shifts inside the corporation’s international portfolio of production facilities as well as within the global steel industry at large, which may negatively impact production and jobs in Romania. The same cautionary reasoning regarding potential spillovers onto Romanian production also applies to Vimetco’s international operations and the global aluminum industry in the wake of the US decision to impose tariffs on this product, even though the multinational linkages are harder to discern.

Whether, how and to what extent the Romanian production of steel and aluminum will be indirectly affected by the Trump tariffs is currently uncertain. What is certain however is that virtually none of the American products the European Commission – which has exclusive power over the EU’s external trade policy – is currently listing for retaliatory tariffs (ranging from Levi Strauss brand-jeans and Midwest corn to Harley Davidson motorbikes and Kentucky whiskey) may constitute “compensation” for Romania if the trade war does materialize, simply because Romanians do not really import them and therefore cannot affect American producers. At present, Romania imports a little over half a billion euros of American produce per year, made up mostly of Apple computers and iPhones.

Between the United States of America and Romania, there has always been a strange relationship. In the early part of the 20th century, through the First World War and after, there were growing commercial and human ties between the two countries, as trade, investment and one-way migration – particularly into the old industrial American states of Pennsylvania, Ohio and Michigan – increased, but barely any political relations even as the two countries fought on the same side of the war without a formal alliance. Nowadays, things are almost the reverse. Romania and the US have strong political relations, underscored by the deployment of infrastructure for a missile shield on Romanian territory and increased defense and security cooperation, but little economic cooperation.



The Romanian-American Foundation for the Promotion of Education and Culture (RAFPEC)
Amfiteatru Economic

OEconomica No. 1, 2016