- The Trump administration announced new tariffs on US steel and aluminum imports
- Based on import data, tariffs would have the greatest negative impact on Canada and the EU
- RBC Capital Markets suggest tariffs likely to hurt hiring in downstream metals users in the US
Fears of a global trade war flared again on Thursday following an announcement that the United States will impose new tariffs on steel and aluminium imports.
Stocks slumped, as did commodities, reflecting concerns among investors that this could lead to similar responses from other major nations.
Based on the price action, markets, collectively, don’t think it’s a very good idea.
Tom Porcelli, chief US Economist at RBC Capital Markets, agrees with that assessment, calling the prospect of new tariffs a “terrible idea”, pointing out that rather than hurting the likes of China, they’ll likely have a far greater negative impact on Canada and the European Union, the United States’ closest allies.
“Guess who are our biggest suppliers of steel and aluminum? Europe and Canada, respectively,” Porcelli says, pointing to the table below:
“So does the administration actually believe that our two strongest allies represent a national security threat? That is so hard to believe that it borders on absurd.”
In response to potential introduction of new tariffs, Jean-Claude Juncker, president of the European Commission, said the European Union would “react firmly and commensurately to defend our interests”.
“We strongly regret this step, which appears to represent a blatant intervention to protect US domestic industry and not to be based on any national security justification,” Juncker said. “Protectionism cannot be the answer to our common problem in the steel sector.”
A similar response came from Chrystia Freeland, Canada’s Foreign Minister.
“It is entirely inappropriate to view any trade with Canada as a national security threat to the United States,” Freeland said following the announcement. “We will always stand up (for) Canadian workers and Canadian businesses.
“Should restrictions be imposed on Canadian steel and aluminium products, Canada will take responsive measures to defend its trade interests and workers.”
So even before they’ve been introduced, it’s already raised the spectre of a renewed trade war between allies, and potentially a slowdown in the broader global economy.
Adding to those global concerns, Porcelli also questions the net benefit of protecting employment in the US steel sector, noting that downstream sectors employ a significantly higher number of workers.
“There are 415,000 people employed in primary metal manufacturing and metal ore mining businesses. Just for context that is only about two months’ worth of job gains or an extremely small 0.28% of total jobs,” he says.
“Yet the folks in downstream manufacturing — the consumers of steel — employ 16 times as many people.”
While Porcelli admits that he’s speculating a tad on the net impact of the proposed tariffs, he says it’s clear what way the risks are skewed when it comes to the outlook for overall employment growth.
“The negative impact from these tariffs on those downstream industries from a margin and employment perspective is difficult to predict, but it is rather obvious that the winners/losers ratio seems extremely skewed,” he says.