Investment Newsletter March 2018
Winning the unwinnable “Trade wars are good and easy to win.” So said Donald Trump, President of the United States, shortly after announcing new trade tariffs on steel and aluminium made outside of the US (via Twitter of course).
Mike Deverell Investment Manager
Equilibrium Investment Management
Much of the rhetoric around Trump’s new policy does indeed mention China. China is the world’s biggest steel producer, accounting for around half of the world’s steelmaking capacity. However, in Chart One, we can see that China doesn’t feature in the top countries for steel import into the U. S.
Trade tariffs are nothing new and they apply on various goods. They are generally in place to protect jobs and industries where they are key to an economy. For example, if the US steel industry was vital to the US economy and employed millions of people, then cheap steel imports from (say) China could be a major threat. In that instance, large tariffs may well be justified and could potentially even be targeted against China specifically.
In fact, China only accounted for 2% of US steel imports in 2017. A combined 25% came from Canada and Mexico, both members of NAFTA (the North American Free Trade Area). Although Trump wants to renegotiate this agreement, for now this means that there will be no tariffs for these two countries (who also account for 42% of aluminium imports).
However, it is important to be careful about the use of such tariffs. Often they can have unintended consequences, let alone the increased likelihood of other countries responding in kind.
The big problem with Trump’s new policy is that the US doesn’t make that much of its own steel and the American steel industry employs relatively few people. The policy is great for those individuals who may now
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