Trump’s planned tariff hikes garner decidedly mixed reviews

Saying that President Trump’s announcement yesterday calling for 25% tariffs on steel imports and 10% on aluminum imports was surprising and that can probably be viewed as an understatement to be sure.

There are all sorts of reasons for that, with many experts calling it an unwanted or unneeded initiative certain to spur on a global trade war, with the United States front and center in the middle of it all. Aside from whatever the ramifications of a true trade war would look like, there is, of course, the fall out, or trickle down, impact on what this could mean for consumer spending i.e. the real lifeblood of economic activity, more so than any other economic driver.

In a Tweet, naturally, Trump made his intentions for his planned tariff increasessaying: “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!”

But that does not make it true simply because he says so. That is a key takeaway from many economic and policy experts and members of Congress, as observed in various reports.  

Sen. Orrin Hatch, R-Utah, was quoted in the New York Times as saying these tariffs are “a tax hike the American people don’t need and can’t afford.” 

A drop off in financial market activity and potential retaliatory actions from global U.S. trading partners, especially China, Canada, Mexico and the European Union, have been prominently noted since Trump made his tariff plans clear.

Not surprisingly, Thomas J. Gibson, president and CEO of the American Iron and Steel Institute (AISI), praised Trump’s initiative.

“We thank the president for meeting with our industry, and following through on his commitment to addressing the steel crisis,” he said in a statement. “Foreign steel imports surged again in 2017—up 15 percent from the previous year and capturing 27 percent of the U.S. market. About one fourth of domestic steel capacity today is not being utilized. This is fueled by the massive excess steel capacity in the world today, which is more than eight times larger than the annual output of all U.S. steel producers, and driven by subsidies and other interventionist foreign government policies. That translates into idled plants and the loss of thousands of jobs. We are pleased that the president is addressing this issue and look forward to the formal announcement next week.”

With this news still very much in the early stages, the supply chain and global logistics-type takeaways are not necessarily clear cut, but that does not mean there is a lack of opinion or analysis.

Panjiva Research Director Chris Rogers wrote in a research note that both the timing and structure of Trump’s tariff announcement is unorthodox, while adding that the devil will prove to be in the details.

Shifting back to the aforementioned possibility of retaliatory actions, Rogers pointed out that it could come in the form of more generalized trade actions, as seen from reports regarding forthcoming Chinese agriculture investigations, as well as broader commentary from the EU.”

“The major detail to be resolved is whether any countries are exempted,” he wrote. “A broad-based tariff makes sense given the risk of ‘country-hopping’ should specific countries be targeted. There is also an argument for breadth as the carrot of exemption could be introduced to trade negotiations – particularly those relating to NAFTA and KORUS. Panjiva data shows Canada, Mexico and South Korea accounted for 38.4% of steel and aluminum imports in the past 12 months (Canada 26.2%, Mexico 6.0% and South Korea 6.3%).”

And between now and when the tariffs take effect (Trump says it will be soon), Rogers noted that a late surge of steel shipments could be imminent.

Ben Hackett, founder of maritime consultancy Hackett Associates, blasted Trump’s call for increased steel and aluminum tariffs.

“The announced intent to impose tariffs on steel and other metals by the Trump administration at a time when the word economies are showing strong recovery seems to be ‘shoot yourself in the foot,’ strategy,” he said. “It will no doubt bring retaliation from major trading partners.  The immediate result has seen sharp declines in the global stock markets.  How is that good for America? If the steep tariffs are put into  place expect higher producer costs and lower exports. Again, neither good for the American economy nor the consumer. Perhaps this is for the voter base and the policy may be dropped in a week or two. Nothing is certain anymore in Washington, D.C.”

That last statement is pretty accurate, regardless of your political views. And the possibility of a trade war is something that needs to be taken very seriously and with caution, as it could be the tip of a global trade war iceberg that may only be picking up speed.