On May 31, President Donald Trump announced that the U.S. is imposing a 25% tariff on steel and 10% tariff on aluminum from three of its biggest allies, Canada, Mexico, and the European Union.Trump, who campaigned on his America First platform, has long blamed the rest of the world for his country’s alleged problems. “The United States has been taken advantage of for many decades on trade,” said Trump in a statement. “Those days are over.”1
To justify the tariffs, the Department of Justice dusted off an obscure U.S. trade clause that allows the president to put tariffs on foreign imports, like steel and aluminum, when they “threaten to impair the national security.”2
Trade Wars Are an Act of Economic Desperation
Despite solid economic data and low unemployment figures, Trump believes the steel and aluminum tariffs will be a boon for American workers and the U.S. economy. But there are always unintended consequences when it comes to trade wars.It might start with steel and aluminum but it always trickles down to other areas as those on the receiving end announce their own tariffs. Mere hours after Trump announced U.S. tariffs on aluminum and steel, Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland announced $16.6 billion worth of Canadian tariffs that will be into effect on July 1. In addition to steel and aluminum, those tariffs will target whiskey, washing machines, maple syrup, sleeping bags, peanut butter, pedicure products, and other items.And that’s how we end up with trade wars.Stock market reaction was swift. The Dow Jones dropped 250 points after the tariffs were announced. It fell 300 points after Canada announced its retaliation. Not that President Trump cares much about that right now, as it appears he’s trying to look tough in the lead up to the November 2018 mid-term elections.Regardless, economics are still at play here. And President Trump’s tariffs on steel and aluminum will have major economic consequences in the U.S., Canada, and around the world.
Possible Impact of Trump’s Trade Wars on The U.S.
President Trump’s tariffs on steel and aluminum are expected to hurt the U.S. as much as it will Canada and everyone else. For starters, it will increase the price of steel and aluminum in the U.S. since metal imports are subject to the additional tax. This might be good news for steel and aluminum producers but its bad news for companies that use steel and aluminum.The increased costs for companies that use steel and aluminum will cut into profits and could force those companies to cut costs, which could include layoffs. No major study has showed the tariffs will result in a boost to employment.Yes, the tariffs would increase U.S. steel and aluminum employment, according to one study, by 26,346 jobs. But, it would cost a net 495,136 jobs throughout the rest of the U.S. economy, for a total net loss of almost 470,000 jobs.3
One of the industries to get hit hardest would be the auto industry, where 40,000 could lost their jobs as a result of the steel tariffs.
How Trump’s Trade War Will Impact Canada
A trade war with our largest trading partner will hurt the Canadian economy. American-made vehicles are going to be more expensive. Chances are good consumers will then look at vehicles made by Japanese auto makers. This should be good for Japanese automaker stocks but hurt the share price of North American auto makers.Tariffs will also drive up the cost of the aluminum used to manufacture boats (pontoons and fishing boats). Brands that use aluminum to package their products, such as pop and beer, will also cost more.In the coming days, the European Union and Mexico are expected to formally announce their own tariffs. The European Union has also suggested they will hit bourbon, jeans, and motorcycles from the U.S. with tariffs. China has already hit the U.S. with tariffs on agricultural products, including port, fruit, and nuts.President Trump’s tariffs will be far reaching and no one really knows how bad it will get. As Peter Warrian, a steel expert at the University of Toronto put it, “It starts with steel and it winds up in Gucci.”4
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President Donald Trump fired the first volley in an unexpected trade war with Canada, Mexico, and the EU. Trump think’s it will be an easy win for the U.S., but as in any war, there are unintended casualties. And it’s not clear who is going to bear the brunt end of this one. The trading experts at Learn-To-Trade.com
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- Sink, J. “Trump Warns Trudeau on Nafta: Fair Deal or No Deal,” Bloomberg, May 31, 2018; https://www.bloomberg.com/news/articles/2018-06-01/trump-warns-trudeau-on-nafta-fair-deal-or-no-deal-at-all.
- “Trade Agreements,” Government Publishing Office, last accessed June 4, 2018; https://www.gpo.gov/fdsys/pkg/STATUTE-76/pdf/STATUTE-76-Pg872.pdf.
- “Trump’s trade war is likely going to kill hundreds of thousands of jobs,” Business Insider, June 3, 2018; http://uk.businessinsider.com/trump-steel-aluminum-tariffs-on-canada-europe-mexico-will-hurt-us-jobs-2018-6.
- Evans, P. “Now what? How steel and aluminum tariffs will impact Canada,” CBC, June 1, 2018; http://www.cbc.ca/news/business/trump-steel-aluminum-tariffs-1.4685993.
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