Free Trade and “The Donald” – Part Two
A Firstline Securities Limited Blog by: Mike
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Introduction
In the second part of our series of blog entries on free trade we look at the steps taken thus far by the Trump administration, and the responses of the main players.
What are the Trump tariffs?
The Trump tariffs are a series of tariffs imposed under the Donald Trump presidency.
In January 2018 the Trump Administration imposed tariffs on solar panels and washing machines of 30% and 50% respectively.
Later in the same year the administration imposed a 25% tariff on steel imports and a 10% tariff on aluminium imports from most countries.
On the 1st June 2018 the steel and aluminium tariffs were extended to cover the European Union, Canada and Mexico.
On the 6th July 2018 Trump turned his attention to China (we discuss China as a special case further below) setting a tariff of 25% on 800 categories of goods with an import value in excess of US$50 billion.
In an independent study Morgan Stanley estimated that the Trump tariffs on steel, aluminium, washing machines, and solar panels impacted 4.1% of total United States imports.
How have other countries responded?
The imposition of tariffs by the Trump administration has angered many of the United States’ trading partners.
Canada imposed retaliatory tariffs on the 1st July 2018.
The value of the Canadian tariffs will match the value of the United States tariffs “dollar-for-dollar” and covers 299 goods imported from the United States, including inflatable boats, yogurt, whiskies, candles and sleeping bags.
On the 6th July 2018 China imposed tariffs equivalent in value to those levied by the United States on China, and made a threat to levy tariffs on soybeans (also discussed below).
Retaliatory tariffs levied by the European Union took effect on the 22nd June 2018.
The European Union tariffs cover over US$3 billion of imports from the United States into the European Union and impact goods as diverse as orange and cranberry juice, clothing, washing machines, cosmetics, boats, and motor cycles.
Among the United States manufacturers affected by the European Unions tariffs are Harley-Davidson who have subsequently announced that they would move some of their manufacturing capacity out of the United States.
In response to the Trump tariffs, Mexico implemented retaliatory tariffs on around US$3 billion worth of United States goods on the 5th June 2018. Goods covered include steel, cheese, apples, pork, and whisky.
China initiated a World Trade Organisation (WTO) complaint against the steel and aluminium tariffs on the 9th April 2018, and the European Union opened a similar complaint on the 1st June 2018.
Are the tariffs legal?
The Trump tariffs have been levied using section 232 of the Trade Expansion Act of 1962 which allows the President to impose tariffs based on a recommendation from the United States Secretary of Commerce if an “article is imported into the United States in such quantities or under such circumstances as to threaten or impair the national security.”
How do economists view the tariffs?
Peter Navarro aside, economists have condemned the imposition of tariffs.
On the 14th March 2018 Reuters published a survey that stated 80% of 60 economists surveyed said the imposition of tariffs by the United States would do more harm than good and the remaining 20% said they would do nothing or very little. Not one of the responding economists felt the imposition of tariffs would benefit the United States.
Domestic political response
The Trump tariffs have seen widespread criticism from Republicans who currently control the United States Congress. Despite this criticism, Paul Ryan the Speaker of the House of Representatives has said that Congress would not pass any tariff legislation that President Trump might veto.
Amongst Democrats, reception has been mixed with some who represent the Rust Belt states (those that suffered extensive deindustrialisation in the 1980’s) voicing muted support for tariffs on both steel and aluminium.
The special case of China – responding to intellectual property theft?
On the 22nd March 2018 President Trump signed a memorandum under the Trade Act to implement tariffs totalling US$50 billion on Chinese goods.
President Trump stated that the tariffs would be levied as a result of Chinese theft of United States intellectual property.
As a result of the announcement of the tariffs – and the fear that the situation would quickly degenerate into a trade war – the Dow Jones Industrial Average fell 724 points.
China responded by announcing tariffs on 128 products imported from the United States on the 2nd April 2018. 120 of those products would be taxed at 15% (including fruit and wine) while the remaining 8 (including pork) would be taxed at 25%.
On the 3rd April 2018 a list of over 1,300 Chinese goods was published by the United States that would be subject to the imposition of tariffs. This list included flat screen televisions, satellites, medical devices, aircraft parts, and batteries.
On the 4th April 2018 China again responded by announcing additional tariffs of 25% on 106 items including automobiles, airplanes, and soybeans. It should be noted that soybeans are the United States’ top imported agricultural product into China.
On the 9th May 2018 China raised the stakes and went a step further cancelling all soybean orders from the United States.
In response, the Trump administration released a list of Chinese goods (with a value of US$34 billion) that would face an additional tariff of 25% commencing on the 6th July 2018 and an additional list was released (with a value of US$16 billion) that would also be subject to a tariff of 25% from the 23rd August 2018.
Further blog entries in this series
In the third and final blog entry in this series we look at the pros and cons of tariffs and trade wars.
Can a trade war really ever be won?
What are your thoughts on recent events relating to international trade?
Send us your comments – we’d love to read your opinion. Even better, if we get differing views because we like nothing better than a debate!
Other than debating, we offer comprehensive coverage of local and international markets with many unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@firstlinesecurities.com or at 868.628.1175. We can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.
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