Last week, US President Donald Trump signed the order paving way to the imposition of trade tariffs on the importation of steel and aluminium. A 25 per cent duty is being charged on the importation of steel and a 10 per cent duty is being charged on the importation of aluminium. Perfectly in line with his election call, America First, Trump argued that the levies were necessary for national security and to stop the “assault on our country”.
Trump had campaigned on saving US steel and aluminium jobs, which have been lost to cheap foreign imports. But the tariffs threaten to undermine decades of agreements on international trade. Officials from China and Europe have threatened retaliation if Trump goes ahead with his plan. The initial plan was for a global levy, although he made clear that exceptions would be made. Mexico and Canada are exempted.
In fact, we need to place this decision in a historical perspective. Since the end of World War II, the leaders of the world’s major economies have operated on a rough consensus that trade offers a strong deterrent against the outbreak of military hostilities. The notion is that communities connected by commerce have a shared interest in maintaining peace.
The setting up of the European Coal and Steel Community and the European Economic Community in the 1950s are a case in point. And they have worked. The General Agreement on Tariffs and Trade and the World Trade Organisation have successfully reduced tariffs on a global level.
The impact on Malta may be difficult to decipher. Parts of the Malta-based manufacturing sector produce components
These tariffs will hurt producers of steel and aluminium. So it would be very pertinent to ask whether this will set off a trade war. If it will set off a trade war, who will be the losers from it? How does this affect Malta’s manufacturing sector?
I believe that Trump’s decision will set off a trade war. The European Union, in its usual style, is likely to take a more considered approach and will not retaliate immediately, if it will retaliate at all. Admittedly the president of the European Commission, Jean Claude Juncker, did state that the EU would retaliate by imposing tariffs on US made products.
Even if the EU takes a softer approach, one would expect China to retaliate aggressively. This could take the form of imposing an export ban on components that the US high tech industry requires or an import ban on agricultural products originating in the US. Once that retaliation gets triggered, there could well be a snowball effect.
The Organisation for Economic Cooperation and Development (OECD) has stated that although world economic growth is at its highest for the last seven years, this is likely to be very vulnerable to a trade war prompted by the US protectionism.
Subsequent to the announcement on the imposition of the tariffs on steel and aluminium imports, the news emerged that the US was considering also imposing punitive tariffs on cars that are imported into the country. The country that is likely to suffer most from such a decision would be Germany, the EU’s economic locomotive. Therefore, a hit on Germany would mean a hit on the other EU economies.
The impact on Malta (and mainly it would be the manufacturing sector) may be difficult to decipher. Parts of the Malta-based manufacturing sector produce components.
If the users of these components will suffer a decrease in demand or push for lower prices because of the trade war, then there could be a negative impact on such companies. So, as a country, we need to be prepared for such an eventuality.
We have grown up in the belief that that free trade and free markets increase prosperity. Facts have tended to support that belief. Suddenly that belief is being questioned.
It throws the whole global economic scenario into disarray, which, coupled with the political uncertainty in various parts of the world, could throw us back into an economic recession.
Whether good sense will prevail is something that remains to be seen.