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Trump’s steel and aluminum tariffs may cause a trade war, who will win?
By admin March 6, 2018

Photo: GETTY IMAGES

Last week, President Trump said he would impose a 25 percent tariff, or tax, on steel imports and a 10 percent tariff on aluminum, sparking a big sell-off in stocks. Trump announced the decision on the same day he met representatives of steel and aluminum enterprises in the White House. However, White House officials said that details are yet to be finalized and will be officially announced next week.

Some political analysts and economists speculate that the president will take targeted measures on tariffs even as Trump was under pressure from some Republicans, who urged him not to take measures that could provoke other countries and interrupt the supply chain.

After the United States announced its decision to impose high tariffs on imported steel and aluminum, many countries said they considered retaliation and international organizations warned it would cause a trade war. The stock market drop reflected a broader concern: a possible “trade war” if other countries hit by the tariffs impose tariffs in retaliation, sparking a back-and-forth of rising tariffs that can hurt the growth of economies.

The U.S. government has taken a positive attitude towards the outcome of this trade war. U.S. Commerce Secretary Rose told the BBC last weekend that the United States does “not think other countries are pursuing free trade. That is nonsense.” And President Trump sent out a tweet stating: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”.

But most economists and trade experts reject that view, saying every country, including the US, stands to lose in the event of a serious trade fight.

The EU issued a harshly worded statement, warning the United States will be retaliated by EU trade. Jean-Claude Juncker, chairman of the European Commission, said that the U.S. government interfered in trade freedom, not for the protection of national security but “for the protection of U.S. domestic industry.” Juncker said the U.S. approach is “trade protectionism” and “can’t solve the problem but aggravate the problem.”

The EU steel industry estimates that after the United States increases taxes, Europe’s exports of U.S. steel products will be reduced by at least 50 percent. EU trade commissioner Cecilia Malmström said raising tariffs not only will negatively effect the relation between the United States and the global market, but also will increase the cost to the U.S, consumers of steel and aluminum products and reduce their options.

As the largest exporter of steel and aluminum products in the U.S. market, the Canadian government reacted strongly to the U.S. tariff increase plan. Christie Freeland, Canada’s foreign minister, said: “We will not accept any trade restrictions. If the U.S. imposes tariffs on Canadian steel and aluminum products, Canada will take measures to safeguard the interests of trade and workers. ”

Brazil is the second largest exporter of steel products to the United States. The Brazilian government said Brazil will consider acting alone or in concert with other economies to take countermeasures. By combating tax news, Brazil’s two largest steel companies stocks tumbled 4.4 percent and 4.2 percent, respectively.

For the United States, the news further suppressed the U.S. stock market. On March 1st, the New York stock market closed with the top three stock indices falling more than 1 percent, of which the Dow Jones index fell 420 points, down 1.68 percent. Shares of U.S. steel and aluminum companies generally rose sharply, while share prices of downstream companies suffered heavy losses amid fears of rising production costs. Among the top three carmakers in the United States, shares of General Motors Corp. fell nearly 4 percent, Ford Motor Corp. fell 3.0 percent and Fiat Chrysler 2.8 percent. Boeing fell 3.5 percent; Caterpillar, construction machinery and mining equipment makers fell 2.8 percent.

In regards to the long term impact, the Trump administration may set a precedent of imposing tariffs on the purpose of national security. Many countries, such as China, will be happy to use national security as a reason for collecting tariffs, which would undermine the WTO’s ability to arbitrate disputes.

Currently, the real risk is not that the prices of steel and aluminum will get higher – though this is likely to be a reality – but that the global trading system which the United States helped to establish could be undermined.

 

For further reading:

Trump: U.S. won’t back down on steel, aluminum tariffs

Navarro says ‘no exclusions’ on steel and aluminum tariffs

Trump’s tariffs can’t save the dying steel and aluminum industry: Bush aide

Trump’s possible trade war with Canada and Europe, explained


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