Leibowitz: Tariffs are the trade version of going nuclear

The world is a more dangerous (and nuclear) place

Last week, nuclear weapons and their potential spread leaped to the front of the public’s attention. Israel’s attacks on Iran were clearly aimed at Iran’s potential to obtain nuclear weapons.

Before the attacks, there was mounting evidence that Iran was on the cusp of having enough highly enriched uranium to build nine to 10 weapons. Iran already has the technology to build missiles that can reach Israel. But a weapon that would both fit on those missiles and have a good chance to get through Israeli defenses (with possible assistance from the US) was not clearly at hand. The retaliation from Iran indicated that some missiles could get through, but not assurance of success. Israel felt compelled to act—and the US acquiesced.

The nuclear problem has been with us since 1945. By 1970, many nations determined that the spread of nuclear weapons was a bad thing. In 1970, the Nuclear Nonproliferation Treaty (NPT) went into effect. Four nuclear powers (the US, the USSR, France, and the UK) and more than forty non-nuclear states brought the treaty into being. China was not an original member but ratified the treaty in 1992. Iran (then under the Shah) ratified the treaty in 1970. Israel is widely believed to be a nuclear state but has never admitted to it and never ratified the treaty. By the 1990s, India and Pakistan had developed nuclear weapons themselves.

When the Cold War ended in 1991 with the dissolution of the Soviet Union, things looked pretty good for controlling the spread of nuclear weapons. A coalition of dozens of countries had cooperated to drive Saddam Hussein out Kuwait. Eastern Europe became free of Communist domination. And, on January 1, 1992, Ukraine and several other former Soviet Republics became nuclear weapons states by accident.

The Soviets left behind lots of those weapons in those new countries. Ukraine agreed to give them back to Russia in exchange for assurances of security and territorial integrity from Russia and other nuclear states in 1994. That agreement was a linchpin of post-Cold War security for all the countries that were not nuclear weapons states.

But in the 2000s, the NPT consensus began to unravel. North Korea signed the NPT in 1985 but tested a nuclear weapon in 2006. In 2014, Russia (in plain violation of the 1994 agreement) invaded Ukraine, seizing Crimea and the eastern Donbas. Countries, including the United States, imposed sanctions on Russia, which had clearly violated the 1994 agreements, but sanctions did not work. The 2022 full-scale invasion of Ukraine persists to this day.

The always-delicate balance regarding nuclear weapons and the security of non-nuclear states continues to erode. Countries that do not have nuclear weapons have come to realize that nuclear weapons states will not necessarily come to their aid if they are threatened with invasion or subjugation. North Korea, Iran and now, countries like Japan (the only victim of nuclear attack so far) are considering nuclear weapons. And the more countries that have them, the more likely it is that someone will use them.

The connection to steel tariffs

This exposes a major weakness for the US to pursue a pure “America first” policy. The US is still the strongest nation on earth. But it cannot rely on nuclear weapons to win wars. They can only deter—using them will likely end the world as we know it. With new weapons like drones emerging, major wars (Ukraine, Gaza, Iran) can be waged without nuclear weapons.

In this context, trade negotiations that impose trade-killing tariffs and then negotiate them down risk more than economic confrontation. Until the 2010s, the arc of global economic events was toward global integration. Now the arc has changed.

How does this affect tariff policy? Tariffs are economic weapons that are sometimes necessary, but always imperfect. They harm friends as well as adversaries.

Protectionism is a great idea, except that it doesn’t work well. The recent doubling of steel and aluminum tariffs to 50% (with attendant legal actions already percolating) signal the failure of 25% tariffs to achieve the goal of boosting domestic steel and aluminum production. Twenty-five percent is a big number. And, if 25 % did not work, why would 50% work?

The most likely consequence is to drive manufacturing businesses that rely on imported steel and aluminum into bankruptcy long before an increase in production, especially of those products (and there are thousands of them) that are not made in the US – or that are in short supply. These historically high tariffs will hurt downstream industries much more than they will help steel and aluminum producers.

In short, when tariffs go up, jobs in consuming industries go down. There is conclusive evidence from past actions: safeguard tariffs in 2002 and Section 232 tariffs in 2018. It is happening again in 2025. The Trump administration wants foreign producers (and US retailers) to absorb tariff increases (except in antidumping cases, where foreign absorption of tariffs is illegal).

Although some might absorb some tariffs as a matter of commercial interest, it won’t happen often. Small companies that use imported steel or aluminum in manufacturing would go belly up if they did it. On the other side of the ledger, steel and aluminum producers are raising prices. And they don’t make many products that American manufacturers need. As a result, domestic demand is falling. Our trading partners are retaliating against US importers—and the trade deficit will persist.

In the end, like the consensus on nuclear weapons falling apart, the tariff wars will result in confrontation and a less stable world.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.