Escalating Trade Conflict: Doubling of Tariffs on Imported Steel by Trump
Ramping up the Trade Tangle: Beware of Devastating Steel and Aluminum Tariff Hikes
In a bold move, President Trump has dialed up international trade tensions by jacking up steel and aluminum tariffs to an eye-watering 50%. This well-publicized decree followed a night-time signing of the relevant order late Tuesday, marking the follow-through on Trump's vow to bump up tariffs from a modest 25% to a staggering 50%.
This trade storm struck on the same day that trading partners were slated to present proposals aimed at averting steeper tariffs on a broader range of goods starting as early as early July. About a fourth of the steel churned in the US is foreign-sourced, and experts warn that Trump’s aggressive strategies to safeguard the domestic steel industry might boomerang back.
Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, isn't shy about slamming Trump's protectionist policy. Rubia believes Trump's sneaky tactics risk dealing severe blows to the U.S.'s front at customs. Rubia argues that with crippling tariffs, automakers, machinery magnates, and construction champs in the US will find themselves in a bind, relying on negligible amounts of expensive and scarce domestic steel and aluminum. Rather than making the U.S. industry more competitive or creating jobs, this policy only sows the seed for industry-wide disaster.
Trump's trade shenanigans also have German enterprises taking a gloomy view of the future. Only 14% of these businesses now foresee a bright economic outlook for the next 12 months compared to 38% back in 2014 – prior to Trump assuming the Oval Office.
Despite this alarming tariff surge, investors on the DBX stock market lingered on their previous record-breaking chase. Thomas Altmann, a portfolio manager at wealth manager QC Partners, grew philosophical about the market's muted response to the trade turbulence, stating that "the stock market reacts less and less to new tariffs." Some wisecrackers on the floor speculated that these tariffs might only be a short-term tool levied to put pressure, rather than a long-lasting policy.
Looking at the customary trade impact, data from the US Census Bureau highlights that Americans neighbors – Canada and Mexico – will carry the heaviest burden. Both countries rank 1st and 3rd in providing steel for the U.S. market, with Canada being hit particularly hard by the aluminum tariffs. Canada exports roughly double the amount of aluminum needed compared to the combined total from the other ten largest exporters combined. The U.S. imports around half of its aluminum from foreign shores.
One exception to this global tariff bomb-blast is the UK, which has managed to secure a preliminary trade agreement with the US. Trump had initially declared April 2, 2019, as the "Liberation Day" and imposed a 25% tariff on a wide range of countries, only to suspend these tariffs for 90 days before reinstating basic tariffs in many cases. While the US continues to negotiate with various countries, only the US-UK agreement has been completed thus far. The White House is pushing to ink more deals before time runs out.
Potential Aftermath of Shelving Steel and Aluminum Tariffs
International Consequences- Trade Wars: The elevated tariffs may prompt trading partners to retaliate, leading to a vicious trade war that could hurt U.S. exports and impair industries dependent on global trade.- Global Unrest: Disrupted supply chains, especially in countries heavily relying on U.S. markets, could trigger economic chaos and jeopardize their competitiveness in the global market.- Uneven Treatment: The exemption of the UK from these trade restrictions, in light of the US-UK Economic Prosperity Deal, implies that diplomatic negotiations and trade agreements can mitigate the repercussions. However, such exceptions could create discrepancies among trading partners.
Domestic Economic Consequences- Higher Consumer Prices: Increased tariffs are expected to spark a 0.1% hike in U.S. consumer prices over the next three years; intensifying the strain on American households.- Industry Impact: Steel-reliant industries could struggle to pass on the increased costs to consumers, causing hardship for manufacturers that rely on cheap imports to thrive. This struggle could result in job losses in these sectors.- Protected Industries: The protection of domestic steel and aluminum industries may shield them from foreign competition, but it could also lead to inefficiency and higher costs for the downstream industries.
Legal and Regulatory Factors- Legal Basis: The tariffs are anchored in Section 232 of the Trade Expansion Act of 1962, providing a legal basis for national security concerns. The administration's use of this provision strengthens their stance compared to other tariffs being challenged in court.- Enforcement: Enhanced reporting requirements and penalties for false import declarations are part of Washington’s efforts to enforce these tariffs effectively and deter fraud.
- As the steel and aluminum tariff hikes escalate industry-wide competition and determine the future of various sectors, politicians and policymakers are carefully monitoring the implementation of these trade restrictions, considering the potential implications on policy-and-legislation.
- Facing the escalating trade tensions, finance experts discuss whether the latest rounds of finance policy are adequate to sustain the domestic economy amidst the increasing general-news regarding the tariff-infused environment.
- With the ongoing trade turbulence affecting several industries heavily dependent on steel and aluminum, it is vital for governments and industries to work closely together to mitigate the adverse effects, as the landscape of finance and policy-and-legislation may be reshaped by these circumstances.
