The White House proved to be deaf once again as they refused to heed warnings from foreign politicians and international organizations like the WTO, who all have talked about how a global trade war would be terrible for the economy. Instead, Trump’s cabinet announced that the United States will definitely be imposing tariffs on steel and aluminum imports from Canada, Mexico, and the European Union.
These states were previously included in the very first announcement that Trump made regarding tariffs, but were given a temporary exemption of a few weeks, during which they could negotiate or hope that the White House would change its tactics upon further consideration. The deadline was last night and the official statement came almost instantly from Trump: there will be tariffs for everyone.
According to President Trump, these measures are aimed at stimulating the American economy and creating more jobs in the steel and aluminum industry. Nevertheless, economists have expressed some concerns regarding this matter, and have even argued that costs for businesses will rise, not decrease when such protectionist policies are implemented. American producers need to pay US wages to their workers, which in some cases are higher than the costs for the same labor in other countries, something that is known as comparative advantage in economics. For instance, if Mexico can produce steel for less than the US, and the US can produce software more inexpensively, then each country has a comparative advantage in that sector and should focus on it, then exchange goods with other states, complementing the two economies. Protectionism hampers this because it is guided by the principle that a country can produce enough on its own, without outside help.
Mexico, Canada, and the European Union, who are among the United States’ most reliable allies, stated repeatedly that if tariffs are imposed, they will have no choice but to retaliate in order to compensate for the sanctions. Mexico said they plan to impose tariffs on US imports that include meat, cheese, and metal products. The EU has also put food, cigarettes, jeans, and motorcycles on its list of American products to get tariffs. According to the European Commission, the planned tariffs are worth about $7.5 billion. Canada has not mentioned specific products, but their plan includes almost $13 billion in tariffs on US goods.
Moreover, starting a tariff conflict with Mexico and Canada has implications for NAFTA. Trump has spoked about the alleged unfairness of that trade agreement since his election campaign. As President of the United States, he has opened a new round of negotiations to amend the agreement and make it more US-friendly, according to Trump. The imposition of tariffs on steel and aluminum happened separately from these negotiations and could complicate them quite a bit. Canada and Mexico are the first and the third biggest exporter of steel to the United States, respectively.
Independently of this, the United States seems to have also abandoned their plan to negotiate with China. They have decided to proceed with the initial $50 billion worth of tariffs they proposed weeks ago. The WTO still has not resolved the States’ demand for action against China unfairly acquiring the intellectual property of foreign companies. It is not clear exactly why the US is sending Commerce Secretary Ross to Beijing this weekend, if the White House is firm in its intention to impose tariffs on China.
Other than steel and aluminum, Trump’s administration is also considering tariffs on automobiles. This would possibly affect Germany and Japan the most.
The affected states have said they would file formal complaints with the World Trade Organization. The entire international community agrees that a trade war is bad for business. So far it seems like the American president is tearing up alliances one after the other, alienating important international partners. Rocky months might be ahead, so we advise you to stay informed and plan your trading strategies very carefully.
