What Happened To Trump's Trade Restrictions, And Are They Still A Risk?
- It has been reported recently that there might be some tariffs in the 20% range on a handful of imported goods.
- In April this year, the US began a “section 232” probe into whether steel imports posed a risk to national security.
- Trump could potentially invoke infrequently used Presidential powers put in place during the cold war to erect barriers against Chinese steel imports without the need for congressional approval.
What Happened To Trump’s Trade Restrictions & Are They Still A Risk?
Trade Tariffs Take A Backseat So Far
Over the course of Trump’s presidential campaign, his proposed trade restrictions were a key focal point, and risk sentiment suffered as a result of the uncertainty linked to the issue. However, at the start of the second half of the year, it appears that investors are currently attaching little risk to the potential of such restrictions. Notably, though, it has been reported recently that there might be some tariffs in the 20% range on a handful of imported goods. As such, it is possible that risk sentiment will once again take a tumble as investors start to focus on the issue again.
Steel Imports Set to be Levied
Steel is one of the key goods set to be levied with a tariff. The steel market is the second biggest market in the world after Oil and gas, and in April this year, the US began a “section 232” probe into whether steel imports posed a risk to national security.
Eurofer Fear European Countries Will Suffer
The move is largely aimed at China, which is the top global steel producer, though the European Steel Association (Eurofer) has raised concerns over the likelihood of European countries suffering too. The group says that the proposed US steel tariffs could significantly damage global trade flows and that European countries are exposed because most Chinese steel is already subject to EU regulations.
At the G20 meeting over the weekend, leaders agreed an August deadline for the OECD-led group to compile information regarding steel overcapacity. A subsequent report on possible solutions is then due in November.
High inventories and firmer import pressure saw European steel prices falling 10% in the second quarter after rising around 50% in 2016. China slashed its steel capacity by 50 million tonnes over 2016 and is aiming to cut a further 50 million tonnes over this year. However, the US argues that a large chunk of the cuts simply cover already idled capacity and that the more important issue of unfairly traded steel is still continuing.
Trump Could Bypass Congress
Trump could potentially invoke infrequently used Presidential powers put in place during the cold war to erect barriers against Chinese steel imports without the need for congressional approval, which would be the first time such powers have been used during times of peace.
There are concerns as such a move will fly in the face of World Trade Organisation rules which allows tariffs only for reasons of national security. Cecilia Malmstrom, the EU Trade Commissioner, said that if EU interests are damaged by US trade restrictions, then the EU would “have to respond”. Reportedly the EU is said to be drawing up measures to target Bourbon, Orange juice, and other agricultural products as a way of responding to any action taken by the US.
Australia Secures Exemption
One noteworthy outcome of the G20 meeting was that Australia managed to secure an exemption from the US steel and aluminium tariffs. Australian PM Turnbull lobbied the US leader as well as Treasury Secretary Steve Mnuchin and other officials to argue that Australian manufacturers were not to blame for the amount of cheap steel and aluminium on the market. The Australian PM reaffirmed that Australia is a “close ally and trusted trading partner” is not at the heart of the issues concerning the US President.
Markets will now wait as the US administration takes the next few weeks to make decisions about the proposed 20% steel tariff and undoubtedly, in the meantime, we will hear more about potential EU counter-measures.
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