United States eyes tariffs to punish China for intellectual property theft

Justin Trudeau Leo Varadkar

Justin Trudeau Leo Varadkar

The sudden decision on tariffs was clearly timed politically-as the White House and Republicans make a final push to try to avoid an embarrassing defeat in Tuesday's special election in a deep-red Pennsylvania congressional district that Trump won by almost 20 points in 2016. The number one tactic he employed was to think big.

"By themselves, the tariffs on steel and aluminum will likely have a modest impact on growth and inflation", said Scott Brown, chief economist at Raymond James Financial in St. Petersburg, Florida.

His comments came amid rising global trade tensions in the wake of a United States decision to impose steep tariffs on imported steel and aluminium.

Steadily rising Chinese production increases pressure for mills to export, putting downward pressure on prices and undercutting exports from U.S., European, Japanese and South Korean mills.

The bloc said that it's a close ally of the USA and therefore any import levies on national security grounds are unjustified.

The European Commission accused Trump of "cherry-picking" data to distort the debate in a transatlantic dispute that threatens to become a trade war. Why should the economic well-being of a few come at the expense of the many? Trump's focus on aluminum and steel would hit France and Germany the most-in the context of the EU.

This form of processing allows it to be stamped "made in Canada" and could avoid the US tariff, which is why the federal enforcement officials will need to identify the country of origin of the original steel, said one industry executive who asked that his name not be used because he is not authorized to speak to the media. Their version stripped out some of the conditions won by US negotiators, such as increased intellectual property protections for pharmaceuticals. What worries us is the ripple effect of the global trade row. The tariffs "risk alienating key worldwide partners that contribute to our ability to defend our nation and maintain global stability", the letter said. On March 7, the European Commission said that it would impose retaliatory duties on American products. To my Foolish eye, though, that still leaves U.S. Steel stock looking like the most expensive stock in a highly valued metals sector - and the one most vulnerable to a fall.

"We expect the impact on USA growth and inflation to be fairly limited", said Mikael Olai Milhoj, a senior analyst at Danske Bank in Copenhagen.

Chinese Commerce Minister Zhong Shan said that "there are no winners in a trade war" on Sunday, warning that a trade war between the USA and China will leave the global economy in ruins. "We support free trade, but it needs to be fair and it needs to be reciprocal".

"Cherry-picking particular tariffs in one category, like looking just at auto tariffs on both sides, misses the whole picture, while not taking into account lower levels on other products does not give an accurate picture of tariffs in general", a Commission spokesman said.

Trade wars could produce some short-term advantages, but the White House's unilateral approach is the wrong solution.

"If the sources of all USA steel and aluminum imports were part of this dispute, trading partners would be permitted to retaliate by a collective amount of $14.2 billion per year", he writes. To put that into perspective, that's about $470 billion - roughly the size of Thailand's output.

A possible trade war could have just as strong an effect for USA companies, but in the opposite direction. Yet most trade spats end up without that kind of damage, and most in the survey were hopeful.

If a US trading partner wants to go through the WTO's dispute settlement process, it could make a "request for consultations" that would start a 60-day period to talk about the issue.

But both Mexico and Canada have rejected Trump's linkage of the levies to the ongoing Nafta talks.