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Global trade war: costs and consequences
WASHINGTON, March 3, 2018 (BSS/AFP) – What are the potential consequences
of a global trade war triggered by President Donald Trump’s decision to hit
imports of steel, aluminum and other products with steep tariffs?
Economists warn the measures themselves raise costs of inputs for goods
produced in the US, and increase prices of imports to consumers. But the
consequences could be more far-reaching as other countries retaliate, hitting
the US and global economies.
– How does a global trade war start? –
Trump’s unilateral decision to impose import tariffs of 25 percent on
steel and 10 percent on aluminum, is nearly certain to prompt US trading
partners to retaliate, and file a trade dispute with the World Trade
Organization (WTO).
The European Union already announced it is preparing countermeasures for
US products: Harley-Davidson, bourbon and Levi’s jeans.
“We will not sit idly when European industry and jobs are threatened,”
European Commission chief Jean-Claude Juncker said.
China said it would adopt the “necessary measures” to defend its
exporters, and has initiated an anti-dumping investigation on imports of US
sorghum and signaled it may target US soybeans.
Gregory Daco of Oxford Economics also said there is a risk other
economies, like the European Union, could impose their own steel restrictions
to protect their markets from being flooded by metal that otherwise would
have gone to the United States.
– What is the impact on the global economy? –
Trade is a major contributor to global economic growth and the
International Monetary Fund (IMF) has repeatedly warned that protectionist
policies could jeopardize the worldwide recovery.
“The import restrictions announced by the US President are likely to cause
damage not only outside the US, but also to the US economy itself,” IMF
spokesman Gerry Rice said in a statement Friday.
Newly-installed Federal Reserve chief Jerome Powell this week also
cautioned against tariffs as a way to address trade issues.
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Powell said “trade is a net positive” to the US economy and “the tariff
approach is not the best approach” to helping those communities left behind.
Economists say the impact depends on how other countries retaliate.
“The economic effects of these tariffs on the macroeconomic environment
will depend critically on whether they damage business and household
confidence,” said Mickey Levy, at Berenberg Capital Markets.
“Whatever the reason, imposition of these tariffs is bad economic policy
and its timing is inopportune.”
Daco said the tariffs could start to impact US economic growth very soon,
especially if retaliation ramps up.
– Consumers: winners or losers? –
Taxing imported products could result in higher prices in many sectors.
Japanese automaker Toyota already warned that if it was no longer able to
import cheap steel for its US factories, prices would increase considerably.
This could slow consumption, a risk for US growth traditionally driven by
household consumption.
Daco noted that while US plants can increase domestic production of steel
and aluminum, the cost will be higher than imported metal so “you’re also
going to get impact of higher domestic production costs passed on to
consumers.”
– Is it good for the US? –
US agricultural groups deplored the new protectionist measures, pointing
out that by wanting to protect steel and aluminum producers, he opened the
way to reprisals that would severely affect other sectors such as
agriculture. Grain farmers are now dreading taxes on their soy exports to
China.
They were joined by can manufacturers, business groups and other industry
in calling for the White House to reconsider given the potential damage to
their industries.
In 2002, the-President George W. Bush imposed steel taxes that remained in
effect for just over 18 months. During this period, economists estimate about
200,000 American jobs were lost.
– Is NAFTA compromised? –
The United States, Canada and Mexico have been engaged for more than six
months in a difficult renegotiation of the North American Free Trade
Agreement (NAFTA).
In effect since 1994, Trump has called the pact a “disaster,” and he has
repeatedly threatened to abandon it if the talks do not result in a better
deal for American companies and workers.
While the seventh round of talks is to end Monday in Mexico, many experts
said Friday that the announcements of the US president were likely to
complicate the task of the negotiators of the three countries.
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