What could be the consequences of the global trade war triggered by U.S. President Donald Trump’s decision to impose tariffs on imports of steel, aluminum, and other products?
Why a global trade war?
The unilateral U.S. decision to impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports gives U.S. trading partners the right to respond in kind, for example, by filing complaints with the World Trade Organization (WTO).
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The European Union has already announced that it will respond “decisively.” The European Commission will consider possible countermeasures to the U.S. decision on Wednesday, in accordance with WTO rules, a Commission spokesperson said on Monday, announcing a “swift, firm, and proportionate” response. He emphasized that countermeasures are necessary to protect European interests and that the goal is “not escalation.”
European Commission President Jean-Claude Juncker said on Friday that Trump’s decision is “regrettable” and announced countermeasures. “Now we will impose tariffs on motorcycles, Harley Davidsons, on jeans, Levis, on bourbon,” he said, adding that it is “stupid,” but necessary.
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China has stated that it will adopt “necessary measures” to protect its exporters. Beijing has also opened an anti-dumping investigation into imports of U.S. sorghum and does not rule out that soybeans from the U.S. could also be targeted.
What will be the impact on the global economy?
Global economic growth is based on trade. The International Monetary Fund (IMF) has warned since Trump took office that protectionist tendencies harm the global recovery. The new chairman of the U.S. Federal Reserve, Jerome Powell, expressed reservations about trade sanctions on Thursday. During a Senate hearing, he stated that “tariffs are not the best approach” and reminded that trade generally has a “positive impact” on the economy.
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“The economic consequences of these tariffs on macroeconomic conditions will depend most on their impact on household and business confidence,” says Mickey Levy, an economist at consulting firm Berenberg Capital Markets.
Consumers: Winners or Losers?
Tariffs on imported products could lead to price increases in various sectors. Toyota has warned that if it can no longer import cheap steel into the U.S. to produce cars in American factories, their prices will significantly rise. This could reduce consumption and threaten U.S. growth, which is traditionally driven by household consumption.
Is this good for jobs as Trump says?
“We must protect our country and our workers,” Trump wrote on Twitter on Friday justifying the imposition of tariffs.
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However, far from everyone agrees with the argument that imposing high tariffs will preserve jobs or favor their creation. U.S. agricultural associations have expressed regret since Thursday over Trump’s new protectionist measures, stating that in an effort to protect steel and aluminum producers, he is opening the door to countermeasures that will severely impact other sectors such as agriculture. Grain producers fear tariffs on their soybean exports to China.
In 2002, President Bush imposed tariffs on steel that lasted for 18 months. During that period, nearly 200,000 American jobs suffered the consequences of that protectionist measure, economists from the analytical firm Oxford Economics remind us in a document published on Friday, based on research conducted at that time.
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Are NAFTA Reform Negotiations at Risk?
The U.S., Canada, and Mexico have been engaged in tough negotiations for over six months to redefine the North American Free Trade Agreement (NAFTA). The agreement, which came into force in 1994, Trump has called a “disaster” and constantly threatens to withdraw from it if negotiations do not result in a more favorable agreement for U.S. businesses and workers. The seventh round of negotiations will conclude on Monday in Mexico. Many experts warned on Friday that Trump’s decisions could complicate the task for negotiators from the three countries.
