At 12:01am Friday morning, the U.S. imposed previously announced tariffs on the European Union, Canada and Mexico. When the plan was unveiled back in March, the three regions were given a reprieve. The hope was that during a cooling off period, the U.S. would be able to convince the three to restrict metal shipments, as it had been able to do with South Korea, Brazil, Australia and Argentina.
But as the deadline approached, it was clear that the sides had not made the much hoped for progress. As it pertained to Mexico and Canada, the specific tariffs were knotted up in a larger effort to renegotiate the terms of NAFTA.
Soon after Commerce Secretary Wilbur Ross announced that the tariffs would proceed, all three said that they would retaliate by imposing similar tariffs (25 percent on steel and 10 percent on aluminum and agricultural products) over the next month. Additionally, the EU said it would launch a case against U.S. measures at the World Trade Organization.
The fear among many economists is that trade conflicts are rarely good for consumers or the economy. But analysts from Capital Economics note that while “trade wars could be damaging…in a relatively closed economy where exports account for only 12 percent of GDP,” there is no reason to panic…yet.
In fact, there has not been a big change in most prices since March, but the early round of tariffs covered only about a third of metal imports. With this next action, about 80 percent of imports would be subject to them, which is why it is likely that prices of metals will rise. If producers pass those increases along to consumers, then beer cans, cars, appliances and many other items could cost more, perhaps as soon this summer.
The winners of these tariffs are those who work for domestic steel and aluminum producers. But according to the U.S. Chamber of Commerce, the Administration’s policies, along with the retaliatory measures, could curtail economic growth and threaten as many as 2.6 million jobs. And that estimate doesn’t take into account an additional tariff on imports of as much as $150 billion in goods from China and another 25 percent tariff on all auto and auto parts imports, which the Administration is said to be considering.
The salve to the trade tiff uncertainty and associated stock market sell-off was a positive employment report for May. The economy created 223,000 jobs and the unemployment rate dropped to an 18-year low (April 2000) of 3.8 percent. The broad unemployment rate (U-6), which includes those who are working in jobs they don’t really like; are working part time, but would like full time work; and those who haven’t looked recently but are willing to work, fell to 17-year low (May 2001) of 7.6 percent.
Job gains were spread out across a number of industries, including a 31,000 gain in retail, a 25,000 increase in construction and a 23,000 rise in professional and technical services. And the icing on the cake was a tick up in hourly wages, which have increased by 2.7 percent from a year ago.
The take away from the 19-hour period between the Thursday tariff announcement and the Labor Department report is clear: A solid jobs report trumps tariffs.