Last week the Trump administration shocked markets again by announcing tariffs on imported steel and aluminum of 25% and 10% respectively. Concerns that it may spark a global trade war sent jitters through global markets. But it shouldn’t of such a great surprise. Trump was elected because of his protectionist measures. He’s merely following through with his promises. While some are concerned that Trump is going down the wrong path, others are brushing this off, saying he’s a genius and this is merely another clever tactic that will be watered down. Time will tell. What is interesting is that Mexico and Canada are exempt from the tariffs. Both neighbours account for 25% of US steel imports in 2017, so slapping tariffs on either country would have caused a major headache not to mention soured relations. US and Canadian steel makers are closely aligned. Steel is often shipped back and forth across the border of Canada/US before it is finished. Introducing tariffs would have disrupted production and manufacturing as well as jobs in both countries. Trump granted Canada and Mexico a reprieve but they are re-negotiating the North American Free Trade Agreement (NAFTA). Some say Trump is using the tariff threat to gain concessions from both neighbours others say Trump is trying to bring the world to the edge of a trade war. Are tariffs bad? Yes and no. Tariffs are used to restrict imports by increasing the price of goods and services purchased from overseas and making them less attractive to consumers. A tariff is levied as a fixed fee based on the type of item, for example, $1,000 on any car or 10% of the car’s value. By making foreign produced goods more expensive, domestic produced goods become more attractive thereby protecting the domestic industry and jobs. But they can have a side effect. They make domestic industries less efficient because they reduce competition. Lack of competition pushes up prices. Inflation rises. Currently, US consumers are buying cheap steel from China, EU and Canada. Tariffs will encourage US consumers to buy domestically produced steel and aluminium. It will create jobs and protect the local industry. But on the downside, it push up prices and lower competition. But the biggest problem is that the countries affected will unquestionably retaliate. The EU has already threatened to retaliate by placing tariffs on US exports like Bourbon and Levi jeans. This creates uncertainty in the share market as companies don’t know if they will be affected. Countries likely to suffer most are allies such as the EU (Germany in particular is now by far the world’s largest capital exporter), Brazil, South Korea and Japan and non-allies such as China and Turkey. Here’s how each might react: EU ministers from 28 countries say they will retaliate if they are targeted by the US tariffs. EU might place tariffs on Bourbon, Harley Davidson motorcycles and Levi jeans. It could even apply a tax on its EU cars (BMW, Mercedes, Ferrari, Volkswagen) that pour into the US. It could slap duties on around $3.4bn of US steel,…

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