How Will the Looming Trade Wars Play Out?

by: The Knowledge Group

March 13, 2018


European Union officials plan to go ahead with tariffs on U.S. goods including jeans, fruits, and tobacco if President Trump doesn’t seem to be rethinking proposed tariffs on imports, including 25% on steel products. While Trump’s rhetoric often focuses on the cheaper steel coming into the country from China, the EU trading bloc is a massive purveyor of steel to the United States.

The top White House economic expert, Gary Cohn, opposes Trump’s stance, and now intends to step down. High-profile Republicans including House speaker Paul Ryan opposes the Trump tariffs as well. Harley Davidson is a focus of EU retaliation; notably, its main offices are in Ryan’s state of Wisconsin.

Likelihood of Unintended, Yet Predictable, Consequences

The New York Times noted this week that trade relationships between the United States and other countries is coming unhinged. The Trans-Atlantic Trade and Investment Partnership will now likely go the way of the Trans-Pacific Partnership that connected the United States in trade with Japan and other Pacific Rim nations.

President Trump does not appear inclined to walk back the threats, and is instead announcing a readiness to raise tariffs higher on Europe’s car makers should the EU fight back. As it will, says Jean-Claude Juncker, president of the European Commission.

While Trump tweeted that trade wars are “good and easy to win,” the International Monetary Fund head said “nobody wins” them. Their consequences are usually dire.

Déjà Vu

The last U.S. move to place import tariffs on steel, in 2002, backfired. President G. W. Bush called off the plan before its second anniversary, hoping to contain a severe economic backlash.

One could predict the current tariff plan to play out similarly, considering that the United States buys more steel than it produces. The tariffs can only mean higher costs for metals used by Detroit’s car makers, followed by further pressure on the auto sector, our agricultural economy, and various other U.S. industries.

Ultimately, the move could exacerbate the misgivings of Fitch Ratings and other credit groups about the direction in which U.S. economic policy is headed. Keep updated with the latest global and domestic developments while earning continuing education credits, check out our extensive list of live and recorded webcasts by clicking here.