Features, canada, united states, european union, mexico, manufacturing

By OMX | May 31, 2018

The U.S. will impose a 25 percent tariff on steel and a 10 percent tariff on aluminium from Canada, Europe, and Mexico. Who are the winners and losers? And what's going to happen next?

A 25 percent tariff on steel and a 10 percent tariff on aluminium from Canada, Europe, and Mexico is now in effect

A 25 percent tariff on steel and a 10 percent tariff on aluminium from Canada, Europe, and Mexico - who supply almost half of America's imported metal - has gone into effect at midnight Thursday.

Canada is America's largest source of imported aluminium while the European Union is the largest source of imported steel.

As previously reported by OMX on May 1, the tariffs, which were first announced in late March, were temporarily delayed for a month. U.S. Secretary of Commerce Wilbur Ross said on Thursday that while trade discussions had not progressed to warrant another delay.

Canada has earlier announced additional steps to prevent foreign metals being dumped into North America - including more than $30 million in funding over five years for trade-related investigations and additional investigative powers to the Canada Borders Services Agency.

 

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China, South Korea, Australia, Brazil, and Argentina also affected

Earlier in the week, the White House also announced a 25% tariff on $50 billion of Chinese goods containing "industrially significant technology," aimed at reducing the $337 billion trade deficit with China. The list of Chinese imports subject to tariffs is expected to be announced and implemented in mid-June.

The U.S. had earlier reached agreements with South Korea, Australia, Brazil and Argentina to voluntarily limit their metals exports.

 

 

Aimed at protecting America's national security

The tariffs are being executed under a Cold War legal measure that aims to protect America's national security. Mr. Ross reiterated this goal on Thursday, saying, “We take the view that without a strong economy, you can’t have strong national security.”

The White House fears that weakened domestic metal production would leave the U.S. vulnerable if conflict disrupts trade flows.

The day before, Canada's foreign minister Chrystia Freeland said the notion that Canadian metal imports would threaten American national security “frankly absurd.”

 

What is a tariff?

A tariff is a tax placed on imported goods. Tariffs are typically a governmental tool to protect domestic industries and raise revenue.

With the new metal tariffs in place, a company that brings $1,000,000 of steel made in Canada to the United States would have to pay $250,000 to the government - essentially increasing the price of Canadian, Mexican, and European steel by 25%.

 

Who are the winners and the losers?

The most obvious winners are the domestic metal industry. U.S. steel and aluminum companies have heavily lobbied for such tariffs in the past.

The most obvious losers are domestic industries that rely on foreign steel and aluminum for production. These industries include some of America's largest: the automobile sector; aerospace; heavy equipment; and construction.

American steel-using industries are significantly larger than American steel-producing industries - employing almost 80 times as many people. Analysts fear that the tariffs will most likely trade off jobs saved in U.S. steel and aluminium industries against job losses in other manufacturing sectors.

American consumers will likely face higher prices for products that contain metals.

 

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So what's the impact?

Econofact has outlined the most likely scenarios that the tariffs will produce:

  • Tariffs and quotas may stimulate greater domestic production by raising the price of steel in the United States.
  • Greater demand for domestic steel may have a muted effect on employment in steel production because of technological innovation.
  • Higher steel prices could adversely affect other U.S. manufacturing industries that depend on steel as an input to production. 
  • Industries that use steel most intensively may be at risk of job losses and plant relocations if the United States imposes high tariffs on steel for a prolonged period.
  • Global overcapacity is the biggest challenge to the steel industry in the United States as well as across the world. 

 

Tit-for-tat

Canada, the European Union, and Mexico have all vowed to retaliate with their own tarrifs on American goods selected for maximum economic or political impact.

Canada is planning a $13 billion tariff on American products including a 25% tariff on types of American steel and 10% on consumer products such as yoghurt, whisky, and roasted coffee. The tarriff is planned to begin effect on July 1.

Europe had previously prepared a list of American exports worth $7 billion that would be subject to retaliatory tariffs which include bourbon, cranberries, and jeans, aimed at collecting $1.6 billion in tariff revenue.

Mexico is also implementing new duties for American steel, apples, grapes, blueberries, and cheese.

Both Canada and the EU are planning to open a trade dispute against the U.S..

 

What's going to happen next?

As an early New York Times analysis puts it, "This action may create some jobs in domestic metals-producing industries, cost some jobs in fields where steel and aluminum are inputs, and push consumer prices a bit higher. The large and dynamic United States economy can handle it. The risk comes from the potential ripple effects."

The Trump administration's rationale of national security to impose tariffs could also set an uncomfortable precedent, undermining the ability of the World Trade Organization to settle disputes.

Market conditions on Thursday reflect this uncertainty: the Dow Jones Industrial Average declined 212 points, or 0.86%, to 24,455, the S&P 500 fell 0.39% and the Nasdaq was down 0.05%.

 

 

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