logo-loader

What is the White House really up to? Trade war threats recede, as tariff exemptions multiply

Published: 08:00 01 Apr 2018 BST

1522320987_DonaldTrump_353100986

Standard & Poor’s has said that the US economy looks set to grow by 2.9% this year and 2.6% in 2019. That looks likely to create a very favourable environment for the ongoing recovery in the mining sector, as the world continues to suck in copper, iron ore and all the other commodities required for growth and expansion.

S&P argued that there would also be a near-term boost from the government’s budget agreement.

That’s all to the good, but as we know, markets have been spooked by the possibility of  trade war between the US and some of its major trading partners.

But S&P reckons that the current sound and fury around tariffs is unlike to lead on to substantial negative impacts to the economy at large.

"We believe the tariffs announced so far by the president will have minimal direct macroeconomic effects, boosting consumer-price inflation only marginally and weighing a bit on already sluggish productivity growth," Standard & Poor’s U.S. Chief Economist Beth Ann Bovino.

If that forecast turns out to be true, then Donald Trump will be entitled to feel vindicated, up to a point.

It’s still not entirely clear – and perhaps never will be – exactly what the point of these steel and aluminium tariffs are.

The idea that the US would upset its biggest trading partners deliberately in an act of petulance only really carries weight because of the style and manner in which Mr Trump carries out his presidency.

But actually, some commentators are speculating that there may be more – or indeed less – to these tariffs than meets the eye.

It’s already notable how many exemptions have been made: already the European Union, Brazil, Mexico, Argentina, Australia, Canada and South Korea have made it onto the list. And there is some talk now that even China will end up exempt to.

So what is going on?

One answer might be that those US companies that import cheap steel slab for manufacturing, also constitute part of Mr Trump’s blue-collar base, and as such a bit of finessing of who actually will and won’t benefit has been required.

But on the whole the US steel industry has been in favour of the tariffs, putting forward the simple argument that if cheap steel is taken out of the US market, more US steel plants will be able to stay open.

So, domestically inside the US it’s a mixed picture. But internationally, could it be that Mr Trump is beginning to display the mastery of “the deal” that he so often trumpets he has?

The thinking is this. Mr Trump’s administration grants exemptions to the tariffs, but these are only temporary. It also dangles the possibility of tariffs in front of nations that haven’t yet been granted them. In both cases this provides a key ingredient in the art of a good deal: leverage.

Will the temporary exemptions be extended? – leverage. Will new countries be allowed an exemption? – leverage.

All of a sudden the US has a new card to play at trade talks, and no matter what the moral outrage of economists at the breaching of the free-trade shibboleth, this may turn out to be a good short-term tactic.

Longer-term, the risks are still there, of course. If this tariff posturing does erupt into a full-blown trade war, then the US will clearly have overplayed its hand. But as it stands, with so many exemptions in the wind, that seems unlikely.

 

 

 

FTSE rises ahead of Easter weekend, JD Sport gains on upbeat outlook -...

The FTSE 100 gained on the final morning of this shortened Easter trading week. Festive cheer was limited though, as Thames Water confirmed shareholders would not provide it with a £500 million rescue package, prompting speculation over the London supplier’s future. On a more positive...

1 hour, 2 minutes ago