The Trump Effect is surrounding us again. This time it’s in the form of stiff tariffs on imports of steel and aluminum. And the imminent tariffs are upsetting stock markets, according to the New York Times, with the prospect of a global trade fight around the proverbial corner. US President Trump’s announcement, which came during an insider meeting with industry executives, seeks to impose tariffs of 25% on steel and 10% on aluminum. The debate escalated as Trump declared he would consider a tax on imported cars if European leaders increased tariffs on US goods.
Reports from the Wall Street Journal have it that Trump’s pro-trade advisers are against the tariffs and are stunned.
Let’s use this edition of the “Gas2 Week in Review” to trace this most recent iteration of the Trump Effect on the US and the reaction of the marketplace, especially that of global auto and parts manufacturers.
In what is increasingly a digital US economy, aluminum and steel imports together add up to about 2% of total goods imports, says Barclays. Yet the economic damage of steel and aluminum tariffs could multiply if other nations decide to retaliate. USA Today reports that stocks fell rapidly after the tariffs announcement. The Dow lost 420 points, or nearly 1.7%, and the Standard & Poor’s 500 index and Nasdaq each lost about 1.3%,
If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!
— Donald J. Trump (@realDonaldTrump) March 3, 2018
Penalizing Automakers Means Penalizing US Consumers
According to CNBC, the Trump Effect could affect car manufacturers like Volkswagen and BMW, which are quite popular with US consumers. The German luxury car maker also manufactures many of its cars in the US, resulting in billions of dollars. In 2016, the EU shipped more than 6 million cars abroad, and the US — its largest market by far — absorbed more than 1 million of those, according to the European Automobile Manufacturers Association.
Each year, the US imports more from Europe than the continent absorbs in US goods: this is a trade deficit worth more than $11 billion in 2017, according to U.S. Census data. Trump’s decision to impose tariffs on steel imports has increased murmurs of a trade war, exacerbating both the US political scene and global economic concerns.
The Association of Global Automakers (AGA), a trade group of international automakers and suppliers with US satellites that include Toyota and Honda, urged against tariffs and quotas, saying they could force auto prices and those of other consumer goods higher. John Bozzella, AGA president and CEO, looked to historic precedent. In 2002, steel tariffs cost some 200,000 jobs nationwide, including 30,000 in Michigan, Ohio, and Pennsylvania. “With one stroke of the pen, much of the promised benefit of tax reform and other administration initiatives aimed at reviving manufacturing and protecting national security could be undercut,” he foreshadowed.