In what seems to be a continuation of the Trump administration’s protectionist policy, president Trump announced that a variety of tariffs would be introduced to counter the influx of various commodities coming into the country. This move towards more tariffs sparked the ire of many of its trade partners and forced many to start seeking new trade agreements while reigniting the debate on protectionism.
While the tariffs seemed to be originally aimed at China, with whom the US has had a wide trade deficit with over the years, they have been extended to former allies Canada and Mexico and are now targeting imports from the EU as well. As a matter of fact, EU imports will be hit with a 25% tariff on steel and 10% aluminium. But what effect will these new tariffs have on the European economy and the global economy as a whole?
EU leaders are scrambling for answers
Many EU leaders have already expressed their anger about this new set of protectionist measures and have vowed to fight back. The EU already mentioned that they will be challenging these tariffs before a World Trade Organisation’s court. And leaders from France, Germany, Italy, and the UK made their discontentment clear to president Trump over the course of the G7 summit. However, it is still unclear if the discussions will have any concrete effect on the tariffs.
Effects on tariffs still not clear
While tariffs may seem like a bad thing at first, the effects of the tariffs on the EU may not be as clear cut as we may imagine. Usually, when an economy the size of the United States decides to impose tariffs on a commodity, the price of the commodity tends to rise in the country imposing the tariffs and decline in the exporting countries.
Since exporting the commodity to the US will become much more expensive because of the various tariffs, the exporting countries will start to divert their exports to other countries instead. As a result, global supply for the commodity outside of the United States will increase, causing the price to go down.
European steel workers tend to lose most
One of the sectors that will be the most negatively affected will be the steel production sector. Since demand from the United States is set to dwindle, producers and workers will be directly affected. But the tariffs will also affect the EU steel market indirectly, since other countries that have been affected by the tariffs, such as China for instance, will be looking to expand their imports to other markets, including the EU, which will have the effect of flooding the EU market with cheap Chinese steel.
Scrap metal exports might be an exception
The only sector that might benefit from the US tariffs is the recycled metal sector. China, which was one of the biggest importers of US scrap metal, has already started introducing a variety of retaliatory sanctions on US scrap metal imports coming into the country. They have also expressed interest in seeking scrap metals from other markets such as the EU.
This could ultimately mean good news for exporters and non-profit organisations like Scrap Car Network which allow you to scrap your vehicle for a charitable cause. Higher prices on exportation ultimately means that the social value of every vehicle that is brought in for recycling might become significantly higher as a result.
Manufacturing sector might benefit as well
But one of the things that is rarely discussed is how small the EU aluminium and steel exports to the United States are to begin with. As a matter of fact, aluminium and steel imports only account for about 1.23% for steel and 0.43% for aluminium of the total European exports to the US. The lowering of local European steel and aluminium prices will eventually benefit local industries that use them as a material, mainly those involved in construction and manufacturing.
The lower prices might also benefit EU customers as well. Since the price of steel and aluminium will be lower, production prices will be lower as well. These lower production costs will eventually trickle down to the customers who will be able to get lower prices on various manufactured goods.
The negative effects on the tariffs will not be equal across all European countries. Those with the highest percentage of US exports (Germany, Italy and France) will suffer much more than countries like Austria and the United Kingdom who export less than 10% of their steel to the US.
While the future is still uncertain about the tariffs and what their effects will be on the European and global economy, we can expect that various governments will have to adopt a protectionist attitude as well to counteract their effects and send a message. We can only hope that the situation doesn’t spiral into an international trade war where consumers will eventually become the unwilling casualties.
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