First, Washington imposed stiff tariffs on imports of aluminum and steel coming from the European Union, Canada and Mexico. Its partners, of course, were not happy with the 25-percent (steel) and 10-percent (aluminum) duties that were implemented starting the 1st of June.
Now to retaliate, Washington’s trade partners and allies are implementing “counter-balancing measures” in response to the “illegal” decision (according to France). Mexico, for example, said it would impose duties on some United States goods like steel and other agricultural items, including pork, apples and cheeses. Brussels had previously threatened to impose tariffs on US products like bourbon, motorcycles and blue jeans. Canada is imposing retaliatory duties on US imports (potentially including beef, coffee, candies, plywood, maple syrup, aluminum and steel) worth up to $12.8 billion. The EU has yet to announce the specific measures they are taking.
It doesn’t take an expert to see that businesses and consumers are going to be the casualties of this economic conflict. Shares in the global stock markets in London, Paris, Frankfurt and even Wall Street, are falling. Economic reports say the Dow Jones Industrial Average dropped 1.0 percent.
Judging by the recent events and biting comments being released by the different camps, it looks like the world’s biggest economies are indeed on the brink of a trade war. President Donald J. Trump’s decision elicited angry responses from Canadian President Justin Trudeau, German Chancellor Angela Merkel, and French President Emmanuel Macron.
The latter believes Trump’s move was a mistake because it creates “economic nationalism.” “[This] nationalism is war,” he said, “…exactly what happened in the 1930s.” He apparently made a phone call to Trump to say that these tariffs were illegal and that Europe would respond in a “firm and proportionate manner.”
Merkel, on the other hand, said Washington’s recent economic measure would just hurt everyone in the end. Trudeau, speaking about the long-standing trade relations between the US and Canada, said the move was an affront to their partnership.
The chief of International Monetary Fund, Christine Lagarde, addressed the Group of Seven (G-7) officials from the world’s top economies to say that the friction could lead to an “erosion of trust…[and] distort, damage and disrupt supply chains which have been established for decades.”
Economists have of course weighed in on the issue, and two experts have said that the impact would not be that overwhelming. Holger Schmieding of Berenberg Bank believes that its effects on GDP would be small, while the World Trade Organization’s former chief, Pascal Lamy, said there will likely be limited damage, in concrete terms.
Despite these conservative forecasts, both believe that what happened has, of course, negative economic repercussions. Specifically pertaining to the US justification that the action was carried out in the name of national security, Lamy called it a “very worrying development.” Schmieding, on the other hand, believes that the recent events would certainly deal a “significant blow to business confidence” in trade-oriented nations because of uncertain trade relations and Trump’s disregard for international rules.
We can only hope that succeeding negotiations will repair the damage, and convince Washington to take a more flexible stance to find a solution that is acceptable to all, or at least the majority, of the involved economies.