Trump’s Metal Tariffs And The Possibility Of Trade Wars

According to BBC earlier today, the United States’ stance on metal tariffs has softened slightly. Spokeswomen Sarah Sanders said Canada and Mexico could be exempted. US President Donald Trump has announced steel products will face a 25% tariff, with 10% on aluminium goods. Trump’s decision to place tariffs on metal has triggered the beginnings of a trade war, with China threatening an “appropriate and necessary response” and the European Union proposing retaliatory measures against a number of US goods including bourbon and peanut butter.

Vox reported that Trump’s decision has also triggered turmoil across the American Economy. The stock market dip reflects the enormous impact that a 25% tariff on imported steel and a 10% tariff on imported aluminium will have on the economy. Trade groups and businesses in America have started to slam the president’s decision. MillerCoors, an American beer brewing company, warned via its official Twitter account that Trump’s decision would hurt more than a company’s bottom line and “lead to job losses across the beer industry.” However, Donald Trump responded to the backlash by emphasizing the need to “protect our country and our workers” and stating that the steel industry “is in bad shape” via his Twitter account. Sarah Sanders also stated that the US president would sign the measures in by the end of the week.

Trump’s decision is motivated by his desire to retaliate against countries that he believed had been “taking advantage of” the US for decades. The metal tariff is also part of his attempt to address the US trade deficit and rebuild the US steel and aluminium industries which he said have suffered “disgraceful” treatment from other countries, in particular, cheap Chinese imports. Trump is unfazed by the threats of a trade war, pointing out that “trade wars are good” and were something that the US would easily win.

The metal tariff is just one of the many actions taken that make US’s policy shift towards protectionism evident. Trump withdrew the US from the Trans-Pacific Partnership last year shortly after his inauguration, demonstrating a major pivot for the US on trade policy. Trump’s protectionist policies have been dubbed “a gamble” by The Conversation as the policies, if enacted in full, will substantially increase prices in the US. The metal tariff will cause a spike in prices across many products, causing the debilitating effect of rising inflation. The Conversation also pointed out that the Federal Reserve might have to increase interest rates more to aggressively limit the damage and the higher interest rates will then further reduce the buying power of the American consumer and reduce inward investment. It further states that the key to success lies in the confidence and expectations of business and consumers. However, the backlash and stock market dip after Trump’s announcement of metal tariffs proves otherwise.

Forbes has pointed out that Trump’s Steel Tariff is “more [a] political war than trade war.” According to Rapoza, a Forbes contributor, while the tariffs were seen as a slap against the Chinese, the world’s largest producer and exporter of both metals, at first glance, some suggest that Trump is using tariffs as a negotiating tactic for the NAFTA trade negotiations.

Whatever the motivations, Trump’s metal tariffs and shift towards protectionism are likely to hurt the American economy and trigger trade wars between countries. The effects of trade wars can be devastating. It starts with one sector and spreads to others rapidly. In light of Trump’s plan to place tariffs on several countries all at once, the threat of a large-scale trade war may be underway. 

Lew Ching Yip