Unfolding the Potential Impact of Trump's Tariffs - Part 2

March 14, 2018

Keywords: Economic News

As we reported in our previous blog post, President Donald Trump’s decision to place hefty tariffs on imports of steel and aluminum has made waves internationally, but the long-term economic impact of the controversial move remains unclear.

Exemptions and Protests

Although the original plan targeted all aluminum and steel imports, the administration has since announced that Mexico and Canada will be indefinitely exempted from the tariffs. Both nations — Canada is the largest exporter of steel to the U.S., while Mexico ranks fourth — had hinted at possible retaliatory moves in response to the tariffs. Trump, meanwhile, has implied that continued special treatment for those countries could be tied to their willingness to renegotiate the North American Free Trade Agreement.

Elsewhere, Australia Prime Minister Malcolm Turnbull recently tweeted that his country had secured an agreement with Trump to remain exempt, and the president has promised “great flexibility” when dealing with allies over the tariffs.

China and the European Union have suggested they could respond by boosting tariffs on U.S. products, although EU officials appear to be holding out hope for their own exemptions. Trump said recently he would send Ross to meet with EU representatives to discuss a path forward, but he has also continued to take swipes at European nations over what he says are unfair trade practices.

“The European Union, wonderful countries who treat the U.S. very badly on trade, are complaining about the tariffs on Steel & Aluminum,” Trump wrote in a March 10 tweet. "If they drop their horrific barriers & tariffs on U.S. products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc."

The Path Forward

The final form of the tariffs remains very much in flux. Reuters reported that Ross is overseeing a process to determine which companies can apply for exemptions for specific products — a list that could be published before the end of the month. More changes are possible in the coming weeks, as the politics surrounding the issue remain quite fluid.

Meanwhile, financial experts continue to debate the long-term impacts of widespread metals tariffs. Although there is a general consensus that the measures will boost the domestic metals industry, some analysts are concerned the restrictions could be a net negative for the U.S. economy.

Economic Outlook Group chief economist Bernard Baumohl told MarketWatch that more expensive steel in the U.S. would boost prices for companies such as car manufacturers and construction firms. “More workers in the U.S. make products that are made from steel than make steel itself,” he said.

The administration has conceded that the tariffs could increase the cost of some consumer goods, but argues that those price hikes should be tiny — $4 for an average car, for example. “Is that a fair price to pay for protecting national security?” Commerce Secretary Wilbur Ross wrote in his op-ed. “We think so.”

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