President Donald Trump’s announcement that the United States will impose tariffs on foreign steel and aluminum next week rattled markets around the world as investors weighed the prospects of a trade war that could all but derail the U.S. economy.
The Dow Jones industrial average slid 420 points and appeared destined for more volatility on Friday. European and Asian markets also fell and the dollar dropped sharply from six-week highs. Meanwhile, economists, White House aides and even top Republicans warned of the dangers of Trump’s plan for a 25 percent tariff on foreign steel imports and a 10 percent tariff on aluminum.
[Read: 5 Reasons Donald Trump’s Presidency Will Include a Recession.]
The president, however, is undeterred, and on Friday used Twitter to welcome the prospect of a trade war.
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” he says. “Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
The tariffs are intended to fulfill Trump’s campaign promise to fix trade imbalances and get tough on China, a frequent target of campaign ire. In reality, they have a good chance of wrecking the U.S. economy.
Already, companies that use steel and aluminum, such as General Motors Co. (NYSE: GM), Ford Motor Co. ( F), Caterpillar ( CAT) and Boeing Co. ( BA), saw their stocks fall. When cars and construction are more expensive, fewer people can afford them. Sales and profits go down, and these big companies will be pressured to lay off tens of thousands of employees.
That’s bad enough. But the biggest danger in Trump’s trade war will be the ripple effect — our most important trading partners, such as Canada, Brazil and the European Union, are already threatening retaliatory tariffs on products the U.S. exports. Overseas markets will raise the cost of U.S. steel, motor vehicles, telecommunications, consumer goods and lumber, and that will also hurt U.S. businesses and workers.
Canada, Brazil and South Korea are the leading sources for aluminum and steel exports to the U.S. China accounted for less than 3 percent of U.S. steel imports, according to data compiled by Wood Mackenzie.
[See: 7 of the Best Stocks to Buy for 2018.]
Farmers also stand to suffer, should steel-exporting countries retaliate by pulling tariffs on U.S. agricultural imports.
“Every time you do this, you get a retaliation. Agriculture is the No. 1 target. I think this is terribly counterproductive for the agriculture economy,” says Sen. Pat Roberts, who chairs the Senate agriculture committee.
And because Trump is citing national security concerns as his basis for imposing the tariffs, other countries will likely use the same rationale, so the World Trade Organization won’t have the authority to intervene.
The end result is a trade war that will raise prices, increase unemployment and slow economic growth. When President George W. Bush put tariffs on steel imports in 2002, about 200,000 American workers lost their jobs.
“Tariffs haven’t worked historically and they cause retaliation. This is sort of working your way into a trade war which is a drag on the economy,” Art Hogan, chief market strategist at B. Riley FBR in New York tells Reuters.
[See: 9 Ways to Invest Under President Donald Trump.]
Of course, the Trump White House has time to roll this plan back — and we’ve seen other instances where this president unexpectedly shifts positions (DACA, income tax reform, gun control). So the die isn’t cast yet.
But make no mistake: the president’s determination to impose tariffs and trigger a global trade war is the biggest threat in years to the economy and the nine-year bull stock market.
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Donald Trump Is Leading the U.S. Into a Trade War originally appeared on usnews.com
