US on brink of trade war with EU, Canada and Mexico as tit-for-tat tariffs begin:
So here we are again, is there anything different this time?
I actually grew up in Linz, a steel producing area in Austria, which doesn’t make me an expert, but it does mean that local newspapers are covering this in far more depth. I do for example remember that this isn’t the first time this happens. The last time it was G.W. Bush in 2002:
On March 5, 2002, U.S. President George W. Bush placed tariffs on imported steel. The tariffs took effect March 20 and were lifted by Bush on December 4, 2003. Research shows that the tariffs adversely affected US GDP and employment.
The problem is that steel isn’t steel, the same way iron ore or even sand isn’t. (Did you know that the skyscrapers in Dubai are built with sand shipped from Australia?)
So the problem with import tariffs is that your companies relying on these products in their production chain are the ones who pay them. So if you for example need specialist steel for crash protection in cars, you have no other option but to keep buying it at 25% markup. This means the end product is more expensive, and any amount on tariffs will reflect manifold on the finished product due to VAT and so on. So just like Brexit, this is a lose-lose situation. But while there is no winner, it is very clear that one side has more to lose than the others.
This time round is no exception, with the Wifo-Model predicting a damage to the EU economy of up to €10 billion and a damage of €40 billion to the US economy, directly effecting up to 180000 workers in the US. And that is without the EU counter measures.
So what is different this time?
Well, apparently the tariffs put in place by Trump are different to the ones put in place by Bush. For once, the reason he used to defend them is national security. Something that is almost certainly not going to stick at the WTO.
But this in itself could be a danger to the continued existence of the WTO. If the WTO decides to deem them unlawful, and the US is simply ignoring its decision, what then? The reason the WTO system worked for so long was that all the major players obeyed its ruling. If one of them decides to no longer do that, the trust in the institution could be irreversibly damaged.
Trump’s tariffs are also claimed to be more damaging to the economy than Bush’s were. I didn’t quite understand why though, but I am going to believe the actual experts on that one.
And lastly, the EU, Canada and Mexico are preparing counter measures. This is very different to what happened last time, where they just waited for the courts to settle this and the damage biting the US economy, telling the US that we can stop this nonsense any time. This time however the ‘allies’ are going into the offensive. The EU prepared counter measures to deliberately hit US areas that voted for Trump. And Canada is doing things along the same line. I wonder to what end?
If Trump doubles down, this will end in a full blown trade war of the US vs. the World. And while I can not see how the US can possibly win it, I am not sure this will discourage a narcissist like Trump. Every measure will hit the US harder than the other way round. At the end we will have an isolated US, not just in terms of trade, but also politically. A US who still has the largest military in the world.
I assume that the rest of the world will want to pick up diplomatic relations with whoever follows Trump. But with an already deprived working class in the US, pushing them below the poverty line, can’t be a good omen for future elections.