Tariff war threat is real
COMMENT: It seems that a sense of madness has descended on the Trump administration and, in response, Europe is joining the madness, writes Ben Hackett.
The announcement of a 25% tariff on steel imports and a 10% tariff on aluminium by President Donald Trump, as a means to protect the US economy, cannot be described in any other way.
The countries that will be impacted the most are close strategic partners of the US, and they have reacted in a knee-jerk manner. The president of the European Commission, Jean-Claude Juncker, retaliated with threats to impose tariffs on Levi’s and bourbon whiskey; never mind that most Levi’s originate in Asia.
The imposition of tariffs to support uncompetitive industries in the US will hardly solve the problem and will potentially reduce employment as other industries relying on both metals will have a higher input cost. The end result will be that the consumer is the one that suffers the most from higher prices.
To add fuel to the fire, the US Federal Reserve has hinted that there will be four interest rate hikes in the coming nine months of the year - this has resulted in the US dollar gaining strength, which in turn will harm exports.
With what looks like the beginning of a trade war centred around the US, as the world’s major trading countries, China, Korea, Japan and the EU begin to respond to the proposed Trump tariffs, we can expect global trade to slow and possibly not reach the healthy levels projected for this year.
The reason for the Trump tariff announcement may be related with his decision to run for another term and in making certain that his base continues to follow him as he enacts some of his promises from the previous campaign. But his lack of national strategic policy is a clear and present danger to global trade.
The real threat in all of this is that it will be hard to stop a tariff war once it begins. Trump’s pledge to impose tariffs on EU-produced cars in retaliation for tariffs on Levi’s could be just the beginning. What next, a massive tariff on US aircraft components?
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