Could another trade war be on the horizon?
Many people, including major automotive manufacturers are deeply worried about the implications of the US government’s recent announcement on increased tariffs for steel and aluminium imports to the country. President Donald Trump has mandated that tariffs on imported steel will be set at 25% and 10% for aluminium. These measures are planned to come into effect from March 23. He has initially proposed to exempt Canada and Mexico from these tariffs, a move which many will see as an attempt to ease the current deadlock in the NAFTA negotiations and hasten a final resolution to the talks. However, there has been speculation that, if this gambit is successful, it may lead to even greater tariffs for other countries in order to make up the shortfall.
There is an old saying that those who ignore the lessons of history are destined to repeat it. Clearly, President Trump is in danger of falling into this trap. In 2002, President George W. Bush hiked steel tariffs to 30% only to revoke the move 20 months later when the increased penalties were estimated to have cost the US economy 200,000 jobs including 30,000 in the key automotive manufacturing states of Michigan, Ohio and Pennsylvania. For Trump to imagine that there would be no retaliatory action from other countries would be naive in the extreme.
Already, many major vehicle manufacturers have warned of the consequences of the increased tariffs, among them Toyota which is planning to build a new $1.6 billion plant in Alabama with Mazda. It has been estimated that the move would add around $200 to the price of a vehicle, a figure which may be conservative.
In Germany, car manufacturers have urged the politicians to avoid a trade war with the US “at all costs.” The US is the second-largest export market for German vehicles after China and vehicles and components are Germany’s most important source of export income. The VDA, the organisation which represents carmakers such as BMW, Volkswagen and Daimler, has pointed out that local production in the US is greater than the volume of exports from Germany and is increasing. The VDA President Bernhard Mattes said in a statement that in a trade war there are only losers on both sides. This contrasts with President Trump’s tweet that a trade war is easily winnable. They can’t both be right. History suggests that Trump may have got this one wrong.
Simon Duval Smith
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