After announcing that he would introduce new tariffs on imported steel and aluminum, the President tweeted “Trade wars are good”…investors are not so sure. While some would argue that Trump is just making good on his promise to level the international trade playing field, others are concerned that this potential action will hurt the US economy and more importantly, trigger a trade war that could result in the next global recession. You know it’s serious when the Wall Street editorial board called the tariffs “the biggest policy blunder of his presidency”!
To understand the tariff trash talk, here’s what you need to know:
What is a tariff? A tax or duty to be paid on a particular class of imports or exports, in this case, a 25 percent charge on imported steel and a 10 percent one on foreign aluminum. The rationale behind the imposition of tariffs is to raise money or to protect particular industries from competition.
The Trump Administration would levy these new tariffs based on national security grounds -- the Commerce Department would rely on a rarely-used loophole that allows countries to impose restrictions in times of war.
When would they go into effect? There should be more details this week, including the
timing of the actions and potential exemptions for specific countries and industries.
Who are the winners from tariffs? Domestic producers will be the biggest beneficiaries. If their businesses increase enough, these producers could potentially hire more.
Who are the losers? Companies that purchase the imported steel and aluminum are the losers. Included in this group would be car manufacturers, equipment makers, construction firms, tool and dye makers, manufacturers of air conditioners, industries that use aluminum for packaging, like beer companies and canned food makers.
Which countries are most impacted? Although the President has criticized China for flooding the market with cheap metals, it is not one of the top 10 exporters of steel to the US. The reason is that there were already targeted tariffs in place, which have dramatically reduced China’s exports. In fact, Canada and Brazil were the top sources of foreign steel to the U.S. as of September 2017.
Will consumers lose? We don’t know whether or not the affected companies will pass on the increased cost to consumers or if the businesses will be harmed enough to reduce employment. The American International Automobile Dealers Association warned it would drive prices up "substantially."
How could this lead to a larger international conflict? Affected countries are not going to take tariffs sitting down. Jean-Claude Juncker, the president of the European Commission, said the EU would take retaliatory action if Trump followed through and Canada said that any trade impediments would be "absolutely unacceptable."