Donald TrumpTrump's tariff plan has economists worried about damaged economy, allies
Trump's tariff plan has economists worried about damaged economy, allies
Sam Hodgson/Bloomberg via Getty Images
WatchMarkets fall as Trump slaps new tariffs on steel and aluminum imports
President Trump
may be excited about the prospect of a trade war over his proposed
steel and aluminum tariff increases, but economic experts are largely
worried.
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"Wall Street does not like to hear the words 'trade war,'" ABC News'
chief business and economics correspondent, Rebecca Jarvis, said on
"Good Morning America."
Edward Alden, a senior fellow at the Council on Foreign Relations
specializing in international trade, warned that "there has not been a
real trade war in the world since the 1930s and there's potentially one
in the works now."
"I have more sympathy than most for the Trump administration's trade
policy. I think that they're trying to tackle some real problems,
particularly with China. But this is not the way to go about it. Trade
wars hurt every country, even the largest ones like the United States,"
Alden told ABC News.
The reactions come after Trump announced Thursday that the U.S. will
impose a 10 percent tariff on imported aluminum and a 25 percent tariff
on imported steel beginning next week.
"He believes the rest of the world is screwing the U.S. on trade...and
that this is a way to hit back effectively," Alden explained, as a way
of an explanation for Trump's decision. "It fits with his view of the
world, which is very zero sum...that countries either win or they lose,"
Alden said.
"The goal here is a legitimate one, which is primarily to pressure the
Chinese to stop producing so much steel. China is the origin of all of
this, China has flooded global markets over the last decade. The U.S.
should work with its allies –- Canada, Mexico, Japan, Korea, Europe --
to put pressure on China to reduce steel production," he said.
Evan Vucci/AP
Alden warned that there could be crippling results to the economy,
however, and Mark Hamrick, the senior economic analyst for Bankrate.com,
echoed those concerns.
"If you want to rein in the third-longest economic expansion since the
end of WWII, crimp profits at a time when stock market valuations have
been called into question by rising interest rates, force consumers to
withstand price increases and put millions of metals-reliant and other
jobs at risk, the president's stated intention of placing costly tariffs
on imported steel and aluminum is an effective way to start," Hamrick
said in a statement.
Historical concerns
Both Alden and Hamrick noted the key role a trade war played in the
1930s, with Alden saying a trade war "almost certainly extended the Great Depression...and almost certainly exacerbated the political tensions that brought us into World War II."
Trump tweeted this morning that "trade wars are good, and easy to win."
Hamrick said the tweet "shows a stunning lack of appreciation for
history, including the lessons of the Great Depression."
A more recent example of negative reactions to trade tariffs came in
2002, when George W. Bush's administration put steel tariffs in place
and ended up reversing them a year later because of the negative
reaction that unfolded both economically and internationally.
The European Union announced shortly after the steel tariff that they would be imposing retaliatory tariffs for U.S. products and the World Trade Organization eventually ruled that the move was a violation of existing agreements.
Jeff Kowalsky/Bloomberg via Getty Images
"If you look historically at the ways countries have retaliated against
the United States, they primarily target our agricultural products. And
that's done for political reasons because they realized the farm lobby
carried a lot of weight in Congress and so it's done to create pressure
in Washington," Alden said.
There are also diplomatic rules and norms that are different, and
potentially more damaging, in Trump's case versus Bush's. Alden says
that rather than classifying the move as a safeguard measure, like the
Bush administration did, the Trump administration plans to impose the
tariffs on national security grounds.
"By doing this, the U.S. opens the door for every other country in the world to block imports on the same grounds," Alden said.
"That could have enormous knock-on effects," he said.
He gave examples of Russia, China, or Brazil, saying they're not going
to import American corn because it threatens their national food
security, or refusing to import Boeing airplanes in favor of developing
their own national air presence.
Hamrick also imagined that the national security claim could cause other diplomatic issues.
"One wonders how penalizing our leading suppliers of foreign steel,
namely Canada, South Korea, Brazil, and Mexico, will make us safer or
more economically secure," Hamrick said in the statement.
Scott Eisen/Bloomberg via Getty ImagesImpact on consumers
There are two tangible ways the tariffs, if put into effect, could
impact American consumers: in price increases on daily goods and
possible job losses.
Jarvis said American manufacturers "will have to pay more for those
materials and that could ultimately mean price hikes for customers, for
consumers."
"Think of any product that comes in a can -- beer, soda -- that uses
aluminum and steel -- cars, building materials like wiring and beams --
all of those businesses see their costs go up and the question is, if
that's the case, how much of that do they ultimately pass along to
consumers and what is the ripple effect of that on the economy?" Jarvis
said on "Good Morning America."
Commerce Secretary Wilbur Ross dismissed concerns about price hikes on consumer products, telling CNBC this morning that any increase would be insignificant.
"In a can of Campbell's Soup, there are about 2.6 pennies worth of
steel. So if that goes up by 25 percent, that's about six-tenths of one
cent on the price on a can of Campbell's Soup," Ross said during an
interview on "Squawk on the Street."
"I just bought this can today at a 7-Eleven down here and it's priced at
a $1.99. Who in the world is going to be too bothered by six-tenths of a
cent?" said Ross, whom Forbes estimates is worth $700 million.
Michael Nagle/Bloomberg via Getty Images
As for a boost in jobs, that can be expected in the steel and aluminum
industries, which will likely be hiring more staff to meet the rising
demand. But Alden said those numbers are not expected to offset those
lost by industries hit by the increase in the price of the metals.
Looking back at the steel tariff increase during the Bush
administration, Alden said: "We saw more jobs lost in automobiles and
construction and other steel-consuming industries than were gained in
steel-producing industries."
"I think that the defense and commerce departments and others should
work fiendishly over the next several weeks to turn this into a far more
targeted and less damaging action," Alden said.
"This action hurts all of America's friends, damaging them rather than working with them," he said.
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