Trade Wars: Two Sides To Every Story

The purpose of this article is to objectively examine trade policy and its impact on the economy. While there will be a discussion of government policy, our review is not negatively nor positively inclined towards any particular administration.

During the presidential campaign trail, then Candidate Trump stated that he’d renegotiate trade deals to stop other countries from ripping America off. Following the election, for the first year of his presidency, it appeared there wouldn’t be any trade wars as promised. This belief existed because Trump met with Chinese President Xi Jinping last May in which he negotiated a deal to open up the Chinese market to American beef for the first time since 2003. The world watched with bated breath to see if the meeting would go awry. Given the relatively strong economy, which has jobless claims at the lowest point since 1969 according to metrics the government looks at, one wouldn’t expect a sudden jolt for no apparent reason.

Steel & Aluminum Tariffs Introduced

However, even though it looked like America would continue to have relatively free trade with minor changes, that path was broken after President Trump’s announcement of a 25% tariff on steel and a 10% tariff on aluminum. Trump met with the CEOs of American steel and aluminum companies who obviously agreed with his proposal because tariffs would limit foreign competition for these firms. It’s quite bizarre timing for Trump to suddenly act as if the steel and aluminum industries are in dire straits. It doesn’t make sense for the government to ever save an industry, but saving one that’s doing well is unusual.

According to the latest ISM Manufacturing report, a fabricated metal products firm said the “Steel market is doing rather well. Everybody is out of what I need.” As you can see, Trump is solving a problem that doesn’t exist. Furthering this point, you can see in the chart below that U.S. steel imports are near where they have been in the past few years. Also, China only accounts for 2.2% of American steel imports; America is the 26th largest market for Chinese exports. If Trump wants to hurt China, this isn’t the way to do it. The main benefit will be seen in a few rural areas like Kentucky which will have job creation from the steel and aluminum industries.

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Gary Anderson 3 years ago Contributor's comment

Trump wants to break the New normal, meaning he wants interest rates to spike.