While Donal Trump says “trade wars are good and easy to win,” history suggests otherwise. In March 2002, George Bush gave in to lobbyists and imposed steel tariffs of between 8% and 30% on imported steel. At the time, Bush exempted Canada and Mexico due to NAFTA, in addition to some developing countries.
Immediately after those tariffs were applied, the S&P 500 fell more than 33% over the next seven months.
Trump is showing that he is no smarter than Bush, assuming that a trade war is a “good thing.” Every time one country applies protectionist policies, other countries follow suit, and the losers are the consumers who end up paying more for finished products.
Governments always react, never fully understanding the end result. Trying to protect an inefficient industry in your country by applying tariffs against a more productive country does not make the national industry more efficient, it only makes finished products more expensive for your consumers. Tariffs are designed to increase the cost of imported goods. They are nothing more than a tax and, in this case, a tax to be paid by American consumers.
So sure, Trump can succumb to the US steel lobbyist and apply these tariffs to save 143,000 jobs in the steel industry, but these tariffs will affect more than 6 million workers in industries like auto that They use steel to make their products. The end result is that finished products that use steel or aluminum will cost more for consumers. So how is this a ‘good thing’?
For American companies using steel and aluminum, not only will their costs rise, they will be less competitive and their exports will suffer. And then of course we will have the problem of reciprocal tariffs that have already been threatened by countries affected by Trump’s steel and aluminum tariffs. The European Union and Canada have already declared that they will retaliate.
Currencies play a very important role in the cost of imported products. Canada is the largest exporter of steel to the United States. The Canadian dollar is currently trading at US $ 77.50, which means that other things being equal, Canadian dollar priced steel will be 22.5% cheaper than US dollar priced steel.
While these tariffs may contribute to the bottom line for US steel companies, the real losers will be US consumers. If this turns into an all-out trade war, there will be far more casualties globally, including investors.