Battle Lines Are Being Drawn After Trump’s Tariffs Announcement

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It wasn’t long after President Donald Trump’s tariffs announcement was made that battle lines started to be drawn.
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President Donald Trump has spoken to world leaders about his planned tariffs on steel and aluminum. According to Reuters, quoting Commerce Secretary Wilbert Ross this weekend, the president is not considering any exemptions to the 25% import duties on steel and 10% import duties on aluminum. Despite concerns being raised that the imposition of the import tariffs will spark tit-for-tat retaliation by America’s trading partners, the president so far seems adamant there will be no special carve-outs by country of origin.
However, Kevin Brady, chairman of the U.S. House of Representatives Ways and Means Committee, while speaking on the sidelines of the latest round of North American Free Trade Agreement (NAFTA) talks among the United States, Canada and Mexico, is quoted by Reuters as saying that all fairly traded steel and aluminum should be excluded from the proposed tariffs. Brady specifically called out materials supplied by NAFTA partners Canada and Mexico, saying material supplied from elsewhere could also qualify for exemptions.
Meanwhile, Bill Pascrell, the senior Democrat on the Ways and Means trade subcommittee, said “We don’t have a major trade deficit with Canada, if you look at all the products that are coming into the United States from Canada and Mexico, this is an ally. If we can’t make an exception there, then how are we going to get a NAFTA deal?”
The answer may be NAFTA could be allowed to fail.

Renegotiation talks have already dragged on since August without much progress. Pascrell is probably right that application of the full tariffs to Canada and Mexico will result in NAFTA falling apart, which has led many to posit that although the president is playing hard ball at the moment, he will in time compromise on some origins in return for concessions in the wider NAFTA negotiation.
Quite what he is hoping to squeeze out of the Europeans is another matter.
As we noted in a recent post, the E.U. has drawn up some 100 items it will apply reciprocal penalties on if the U.S. goes ahead with applying the tariffs on steel and aluminum, with Jean-Claude Juncker, president of the European Commission, naming Harley Davidson motorcycles, Kentucky bourbon and Levi’s jeans among the list – life really would not be the same again.
Trump, clearly not the be deterred, countered he would slap tariffs on E.U. car exports to the U.S. Currently, the U.S. imposes a 2.5% import tariff on cars assembled in Europe and a 25% tariff on European-built vans and pickup trucks, the most lucrative sector of the U.S. auto market. By comparison, Europe imposes a 10% tariff on U.S.-built cars, Reuters reports. Tariffs no doubt play a role in this, but so does product desirability; U.S. cars have never translated well to narrower European roads, at least in the mass market sector. Germany has the largest trade deficit on cars with the U.S., running at $22.3 billion for automotive vehicles and parts in 2017 and the U.S. has a $7 billion deficit with the U.K.
This situation clearly has a long way to run. What any side (and this is a truly multifaceted situation) is saying now may not be its position a week or month from now.
In the meantime, buyers are at odds as to how best to position themselves, not just to mitigate price increases but to ensure metal supply. Inevitably, that will be the benefit of domestic producers and as a result at higher prices, while importers or those dependent on imports may take a hammering.
The writing was on the wall when Carl Icahn, a former special adviser to Donald Trump, sold $31.3 million of shares in crane and lifting equipment supplier Manitowoc Company, a company heavily dependent on steel imports last week, shortly before the announcement of new tariffs sent its shares plummeting, along with those of Caterpillar and Boeing, according to The Guardian newspaper.
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The aforementioned fulfills the old adage: it’s not what you know, it’s who you know that matters.

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