The rise of US aluminum and steel tariffs

Recent events in the US have led to the world being on the edge of a trade war, with President Donald Trump affirming there will be tariffs imposed on aluminum and steal imports.

Analysts believe we are closer to a trade war than anytime in the 1930s, when the American Smoot-Hawley tariff provoked a knock-on effect in other countries. Since the last recession, there has been greater precautions in place, however not on a large scale.

It has been presumed these new tariffs have been put into place to put strain on the likes of Canada and Mexico, in order to reconstruct the North American Free Trade Agreement. But this is not clear and there is concern that such action will cause current business confidence to drop even lower.

Reports have revealed that Quebec will offer C$100 million on loans and guarantees on loans to businesses which have suffered as the result of steel and aluminum tariffs. This came following response from clients who are simply refusing to pay these new tariffs. The Economy Minister, Dominique Anglade explained that already contracts have been cancelled and production has decelerated. She said the impact of the tariffs on metals had been felt quicker than when the United States announced tariffs on softwood lumber in 2017. “The value of the impact is hard to assess,” she added. “We’re seeing something that we haven’t seen in softwood lumber.” There is concern since these industries are responsible for approximately 30,000 jobs in Quebec.

It is possible that the problem can be contained in the EU. Dutch bank ING have calculated that exports of aluminum and steel account for around only 0.3% of worldwide goods exports from the EU. However, there is also potential for the problem to spiral. The EU have reacted to Trump by threatening the introduction of tariffs on various American goods, to which there is the possibility for Trump to again react with more tariffs. If tit-for-tat continues and new tariffs continue to appear, growth from America and the EU could drop significantly. If tariffs are raised 10% beyond projected levels, it is believed worldwide trade could be knocked by around 6%.

The outcome will have consequences for consumers. If tariffs go up, manufactures will be forced to increase prices to cover the price rise of raw materials. Likewise, for America, the long term affects of rising steel tariffs will be negative. If the US can’t produce steel for the same prices as overseas competitors, manufacturers in the US would too notice greater expenses. Big companies such as Harley-Davidson and Levi’s have said that if the EU act by implementing more tariffs, there would be a negative impact for shoppers, who would have to pay the price for more expensive imports.