AS THE US imposes tariffs on steel from the EU, Mexico and Canada, international finance expert Faisal Sheikh of the University of Salford Business School, looks at what the implications of such a move could be and suggests Trump could walk away completely for the World Trade Organisation.
Faisal Sheikh said: “The news that the USA is to impose tariffs on steel (25%) and aluminium (10%) imports from the European Union (EU), Mexico and Canada should not come as a surprise as this was one of President Trumps campaign pledges and clearly highlights that the current administration is anti-trade.
“President Donald Trump has consolidated his protectionist agenda, attempting to bring manufacturing jobs back to the USA from other nations to where they have historically been outsourced, such as Mexico, China and India.
“The imposition of tariffs is highly political if not populist. In the short run the American steel and aluminium industries will be toasting Trump because they will see a reduction in competition and higher profits.
“On the other hand American consumers and businesses will have to face higher prices for goods. They will pay more for products using steel and businesses pay more for steel that they use to produce goods. Therefore, tariffs are considered to be pro-producer and anti-consumer. However, it is acknowledged that in the long run that protected industries usually become inefficient due to a lack of efficiency and may also experience a reduction in profits due to the emergence of substitutes for their products.
“There is also the strong possibility that Trump will walk away completely from the World Trade Organisation (WTO) an intergovernmental organisation formed in 1995 to regulate international trade. The WTO supports the free trade of goods and services across borders, which stands in direct conflict to President Trump’s international trade policy i.e. imports will be taxed and exports subsided.
“As expected the EU has already a lodged a case against the USA with the WTO which will only heighten the political economy temperature. If the EU and Canada do not receive the appropriate redress they will probably retaliate with tariffs as well causing a full blown trade war which will affect the global economy and markets. On the other hand Mexico will tread more cautiously as its economy is heavily dependent on migrant remittances and already has a strained relationship with Trumps administration due to building of the border wall.
“All this political economy drama reminds that we do indeed live in interesting times and that the growth of populism is here to stay.”