Segal Rogerscasey Comment: No Winner in Trade Wars

(3/5/18) — 

U.S. President Donald Trump announced last week his intention to impose 25 percent tariff on steel and a 10 percent tariff on aluminum in an effort to force trading partners into "fairer" trade agreements. Ruo Tan, President of Segal Rogerscasey Canada, made the following comments about this potential action:

Canada may well bear the brunt of any tariffs on steel and aluminum, as the largest import source for both. A recent report from the Financial Post in Canada states that Canada exported about C$5.5 billion of steel and C$9.3 billion of aluminum to the U.S. in 2017. The announcement sparked a negative market reaction on Thursday and Friday, as shares fell for Boeing, General Motors and other manufacturers of consumer goods that use steel and aluminum. As Wall Street assessed the president's commitment to the action, strong reaction came from Canada, Europe and other countries as well as companies, trade groups and members of the U.S. Congress.

 

Historically, there is no winner in trade wars. The provoked retaliation from other countries could hurt major U.S. exporters, including agriculture. The increase in manufacturing costs may compromise the competitive position of both the U.S. auto and airspace industries. Equity markets may feel a negative impact worldwide, and the Canadian dollar will be under further downward pressure. Finally, this will complicate the reworking of the North American Free Trade Agreement  (NAFTA), as a major component of the talks centered around U.S. steel tariffs for auto manufacturing. While the tariffs have the immediate effect of pitting workers against workers, the calls for greater economic leadership from the Canadian government should now increase from all sides, particularly with this new threat to business investment in Canada.

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