6 March 2018
Bob Cunneen, Senior Economist and Portfolio Specialist
Source: Thomson Reuters
US President Donald Trump’s announcement of a 25% tariff on steel and 10% on aluminium imports has sent a shockwave through global trade. While the President has formally cited “national security” as the key reason for this decision, it suggests that further tariff measures could be applied to other imported goods in a desperate effort to reduce America’s astronomical trade deficit.
In the past year to December 2017, America was running an annual goods deficit approaching US$800 billion (black line). The key contributors to this total deficit was the US$175 billion net import bill from European goods trade (blue line) and the immense US$375 billion deficit with China (red line).
President Trump has calmly pronounced that “trade wars are good and easy to win”. However, there is a risk of retaliation from America’s trading partners which could lead to higher prices for goods including cars and equipment for US businesses and consumers. Higher inflation could then accelerate the pace of interest rate increases from the US central bank. It’s hard to see how this could be “good” for America.
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