Could Trump's tariffs spark a trade war? Here's what you need to know

Trump signed tariff plans today: 25% and 10% on steel and aluminum imports, respectively, but 30-day exemptions for allies Canada and Mexico, based on progress in NAFTA renegotiations period may be extended. In addition, he also said that other countries have the opportunity to be exempted (if the United States can profit).

Other trading partners, such as the European Union, have declared a "tit for tat", which has undoubtedly strengthened the market's expectations of a slowdown in global economic growth, and the stock and bond markets have also been caught up in Trump's fear of a trade war (Ronghui Finance http:// live.shy678.com).

1. What is a trade war?

The dictionary definition of a trade war is: "In an economic conflict, one country imposes import restrictions on another country in order to hurt its trade." Trump's tariffs and threats of retaliation by other countries certainly fit that bill. definition.

Trump justified his tariff plan under the pretext of defending national security. This move is like opening a Pandora's box, and other countries will follow suit. Terrifyingly, Trump also said further punishments would be imposed on countries that "fight back".

2. Did Trump say this is a trade war?

Trump once said in a March 2 tweet that the trade war is "OK, easy for the US to win." Three days later, he spoke again about the tariff plan, saying he didn't think it would lead to a trade war.

Trump imposed the protectionist measures because of the U.S. trade deficit, which shows that U.S. imports exceed exports by hundreds of billions of dollars.

Perhaps withdrawing from NAFTA and the Trans-Pacific Partnership could still appeal to many of Trump’s voter bases, but many U.S. business leaders are wary about the trade war, mostly supporting existing trade deals, arguing that if the U.S. implements This trade protectionist measure, if other countries retaliate, the securities market may panic due to fears of slowing economic growth and lower profits.

3. Who might retaliate?

The European Union has warned that it will respond with 25 percent tariffs on $3.5 billion worth of U.S. goods. By U.S. merchandise I mean iconic U.S. brands in a range of consumer, agricultural and steel products such as Harley-Davidson motorcycles, Bourbon Whiskey and Levi's. .

Not to be outdone, Trump said: "If the EU threatens, he will impose a 25% tax on European car imports as punishment."

4. Who will win the trade war

If history is any guide, the answer is no one. According to the U.S. International Trade Commission: When former U.S. President George W. Bush raised the steel tax in 2002, U.S. gross domestic product fell by $30.4 million. It is estimated that about 200,000 jobs were lost in the United States, of which about 13,000 were in steelmaking.

The World Trade Organization also ruled that Bush's tax hike was illegal.

5. Will steel tariffs backfire?

Maybe, because more people are involved in sourcing steel to make products than there are in steel manufacturing. In addition, some consumers may have to pay higher steel prices as a result.

Trade tensions could push inflation higher than the Fed expected, and policymakers would feel the need to raise rates more aggressively than planned. On the other hand, the Fed may slow the pace of rate hikes if the tariffs lead to massive job losses and slower economic growth.

6. What is the role of the WTO?

This time Trump is citing Section 232 of the Trade Expansion Act of 1962, which is rarely used and gives the president significant power to impose trade restrictions on domestic security grounds. Under WTO rules, countries can take trade actions to protect "essential security interests." Of course, other countries can also question the validity of the U.S. use of the clause, and they can replicate U.S. behavior under the pretext of trade security.

7. What are the consequences of previous trade wars?

One of the most notorious examples is the Smoot-Hawley Act, passed by Congress in 1930, which is also widely credited as the catalyst for the deepening of the Great Depression. The bill increases U.S. tariffs by an average of 20 percent. The original bill was introduced to protect American farmers, but many other industries have lobbied and won similar protections, covering more than 900 products in total. Because of the collapse of demand in the United States, other countries have depreciated their currencies to maintain their gold reserves, or imposed more trade barriers, and global trade is on the verge of collapse (Ronghui Finance http://live.shy678.com).

8. Are tariffs the only weapon in the trade war?

No, there are many other weapons. For example, restricting foreign investment in the United States, manipulating its own currency to devalue it, and many public practices, such as implementing lengthy inspections and complex licensing requirements for imported products.