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Is Trade War Good or Bad?

Team Veye | 06 Mar 2018

Is Trade War Good or Bad?

President Donald Trump has updated the U.S. Aluminium and Steel executives last week that he intends to impose heavy import tariffs 'next week' in a bid to boost American manufacturing.  He firmly believes that this move could not only boost American jobs in those sectors but also raise prices. While speaking to 12-15 steel and aluminium executives at the White House, Trump said he would sign tariffs of 25% on imported steel and 10% on imported aluminium next week and it’ll be on for a long period of time. He said that the US Steel and Aluminium will have such a protection for the first time in a long while, and this will help them regrow their industries. The US President was of the opinion that dumping of cheap, imported steel and aluminium destroys US companies and jobs. Majority of imports in this sector come from China, South Korea and elsewhere. 

However, experts are of the opinion that such actions could hurt a number of industries including automakers and suppliers, boat and plane manufacturers and even beer companies. And there's also concern that the move could instigate a "trade war" in which countries would retaliate by imposing tariffs on imports from US in response.  

The announcement has already affected the Stock market adversely, with the Dow Jones industrial average plunging as much as 586 points in the session after the announcement. This move has a big concern in investors about a potential trade war and the worst aspect is that no one either knows what its real economic impact would be and when would it end.  

The move came even as some automakers, suppliers, business executives and members of Trump's own Republican Party were against the idea of rolling out tariffs amid worries they could raise prices or instigate a trade war, especially with China. A popular US newspaper “Washington Post” reported that China’s Foreign Ministry spokeswoman Hua Chunying on Thursday accused the U.S. of "disregarding the rules of the WTO (World Trade Organization)" and that "China will take proper measures to safeguard its legitimate rights and interests.” 

The Association of Global Automakers — a trade group of international automakers and suppliers doing business in the U.S. that includes Toyota, Honda and others — as recently as Wednesday urged against tariffs and quotas saying they could force auto prices and those of other consumer goods higher.  It has been anticipated that more expensive steel and aluminium will not simply raise the price of cars and trucks but it will increase the price of any and all goods that use them. 

Still, the prospect of tariffs was cheered by steel and aluminium makers in the U.S. who say their businesses have been decimated and thousands of jobs lost due to other nations dumping cheap, imported products in the country. 

After making good on tax cuts and regulatory rollbacks that business leaders wanted, President Trump has turned to a part of his economic agenda that many of them feared: tariffs. 

The global retaliation could hurt American exporters and raise costs for manufacturers that rely on a vast supply chain around the world. U.S. President Donald Trump is risking an economically damaging trade war with his closest allies if he goes ahead with plans to impose steep tariffs on steel and aluminium imports, European officials warned. European Commission spokesman Alexander Winterstein was quoted saying "We are not going to sit on our hands while our industry is at risk of being hit with unfair measures," said "We are going to respond swiftly and in a proportionate way." French Finance Minister Bruno Le Maire echoed the stance of the Commission, which coordinates and supervises EU trade policy. The European Union is anticipated to be considering retaliatory tariffs, roughly one third of which would target steel, one third agriculture, and one third other products. 

Financial markets have taken fright at the prospect, though — Germany's DAX index, for example, was down 2% in Friday mid-afternoon trading in Frankfurt, as investors fretted over the impact of a trade war on Germany's export-heavy economy. 

Trump's move to impose tariffs will surely spark retaliation from other countries or trade blocs, which could be the start of a trade war. And such trade wars usually have a ripple effect across all economies around the world as the supply chain is inter-dependent. 

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