Trump may think that trade wars are "good and easy to win" but the rest of the world, which just happens to have a record trade surplus with the US (excluding petroleum)...
... disagrees, and judging by the barrage of reactions overnight from manufacturers and trade partners from China to Europe, is rather furious ahead of Trump's import tariff order, expected to be signed next week.
Start with China, the world’s largest steel producer however only the 11th largest US source of imported steel...
... where the official response was generally muted.
Foreign Ministry spokeswoman Hua Chunying merely said in Beijing Friday that China urges the U.S. to follow trade rules. China's Ministry of Commerce added that US restrictions on steel trade hurt the global trade system, and that Chinese steel exports to the US do not "harm US security."
Chinese industry insiders, however, were far less restrained. The U.S. measures "overturn the international trade order," Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, said in a statement. “Other countries, including China, will take relevant retaliatory measures.”
Also in China, the vice chairman of China Iron and Steel Association, Li Xinchuang, called the move "a stupid trade protection measure."
Ultimately, the big question is whether, and how, China would retaliate: MOFCOM made it clear that it is considering just that when it cautioned that China "may take measures to protect its own interests."
Nations closer to the US, including strategic American allies, responded with bafflement and dismay seeing their industries threatened. Some also panned the idea that metals imports pose a threat to national security.
“Steel and aluminum imports from Japan, which is an ally, do not affect U.S. national security at all,” Japan’s Trade Minister Hiroshige Seko told reporters in Tokyo Friday. “I would like to convey that to the U.S. when I have an opportunity.”
Canada, which is the biggest foreign supplier of steel to the U.S. was furious: Ottawa said the US measures were unacceptable.
Australian Trade Minister Steve Ciobo called the move “disappointing” and said his country is seeking an exemption.
The Netherlands was especially vocal, and said it was "very disappointed" that the U.S. has announced trade measures against steel and aluminum against it and said it finds the reasoning behind the announced U.S. measures “invalid.” The Netherlands also said it “fully” supports the European Commission in defending the economic interests of the European Union and the member states
The French finance Minister Bruno Le Maire echoed the sentiment, warning Europe will retaliate with a firm joint response if the Trump administration goes ahead with its tariff plans. Le Maire told journalists that "all options are on the table" and Washington could expect a“strong, unilateral and coordinated” response from the European Union.
“These unilateral measures are not acceptable. They would have a major impact on the European economy and French companies like Vallourec and Arcelor,” Le Maire said, referring to Luxembourg-based European steel producer ArcelorMittal.
And speaking of the European Union, it also vowed to “react firmly” with World Trade Organization-compliant countermeasures in the next few days. EU Commission spokesman Winterstein said that the EU already has counter-measures ready against US tariffs and stands ready to respond. Reports in late February in the German press suggested that the European Union is drawing up a list of U.S. products to target — including orange juice and Kentucky bourbon — if Trump proceeds with aluminum and steel import tariffs. For the full European response we must wait until March 5, when EU officials said they would formalize their response to the tariffs.
The angry response was not confined to foreign trade partners: U.S. companies from beer brewer MillerCoors to candymaker Hershey Co., which use aluminum for manufacturing and packaging, also warned that operations would be hurt by the tariffs.
“We buy as much domestic can sheet aluminum as is available, however, there simply isn’t enough supply to satisfy the demands of American beverage makers like us,” MillerCoors said in a tweet. “American workers and American consumers will suffer as a result of this misguided tariff.”
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Meanwhile, as reported previously, according to Barclays calculations, the direct economic effects of anti-trade policies to the US would be limited, given their small share in total goods imports. On the issue of what, if any, inflationary impulse will be generated from higher tariffs, it depends on whether firms view the increase as permanent and if the current state of the business cycle would contribute to a high pass-through rate from tariffs to final goods. That said, Barclays estimates tariffs at these levels to boost y/y rates of core CPI and PCE by an almost negligible 0.1pp. Separately, in regard to activity, the tariffs could reduce trade volumes and higher prices could restrain consumer and business spending. Together Barclays estimates they could reduce GDP growth by 0.1-0.2pp.
Others agreed: "China’s total exports of steel and aluminum are equal to about 0.5% of GDP, most of that from steel,” said Bloomberg’s Chief Asia Economist Tom Orlik. “Relative to fears from Trump’s campaign trail rhetoric, in which he threatened an across-the-board 45% tariff on all imports from China, these measures are extremely limited.”
And while the direct threat to the US economy from Trump's tariffs is negligible, the risk of course, lies in the response of US trading partners and whether the administration’s decision to impose restrictive trade policies is only the first in a series of moves.
As Bloomberg notes, "A U.S. move on tariffs risks provoking retaliation, particularly from Beijing. China has already launched a probe into U.S. imports of sorghum, and is studying whether to restrict shipments of U.S. soybeans -- targets that could hurt Trump’s support in some farming states. While China accounts for just a fraction of U.S. imports of the metals, it’s accused of flooding the global market and dragging down prices."
To be sure, as noted earlier, in light of the record US trade deficit (ex petroleum), it is likely that the White House will seek to enact further steps to restrict trade should a retaliatory tit-for-tat impulse emerge.
Still, some remain hopeful. According to Alex Wolf, economist at Aberdeen Standard Investments who previously worked at the U.S. State Department, the impact of the step hinges in part on which nations will be affected.
"It’s not much ado about nothing, but until we see the final scope of the tariffs and the response from global trading partners it’s hard to say it’s the start of a tit-for-tat trade war."
Then again, with tweets like this...
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!— Donald J. Trump (@realDonaldTrump) March 2, 2018
... a "tit-for-tat" trade war is all but assured.