Trump intensifies trade war: risk for economy and stock markets


– U.S. government planning to introduce tariffs on steel and aluminium imports

– German/European companies are indirectly affected, but barely any consequences at index level

– Increasing protectionism remains a huge threat and is poison to the global economy


U.S. president Donald Trump has announced that tariffs will be imposed on steel and aluminium imports from abroad from next week onwards. These tariffs would be 10% on aluminium and 25% on steel and would apply “for a long period of time”. Details will be disclosed next week.

It seems that the U.S. Department of Commerce has won out within the Trump administration, having proposed three possible options for taxing steel in mid-February. The current favourite choice (25% on steel imports from all countries) is still the “best” alternative, since other options featured significantly higher tariffs for the most important steel importers, at beyond 50% or even 60%. The USA is the world’s largest steel importer, with the steel import volume approximately four times the amount exported.

Over the past few years, global steel production has risen to a current level of 2.4 billion metric tonnes, which represents an increase of 127% versus capacities from 2000. At the same time, the demand for steel has grown considerably more slowly, meaning that a huge surplus has arisen on the global market (around 700 million metric tonnes or seven times the annual consumption in the USA). This has led to U.S. steel manufacturers (similar to many European manufacturers) barely being able to make a profit.

Chinese steel production has played an important role in this context; Chinese suppliers produce as much steel in an average month as American companies do in an entire year.

In Germany last year only 42 million tonnes of steel were produced, of which around one million tonnes were exported to the USA. The direct consequences for the few remaining German and European steel manufacturers, some of which are also listed on the DAX (ThyssenKrupp) and the broad Euro Stoxx 5 (Arcelor Mittal), should initially be manageable. Furthermore, no effects are to be expected for the market as a whole. However, European steel manufacturers will continue to be swamped with a glut of foreign steel, which will presumably be the larger of the two problems. The pressure should now intensify, since it is expected that foreign manufacturers will divert some of their production to the European market that had previously been earmarked for the U.S. market. Sustained price pressure is therefore anticipated on the European steel market. At the same time, the steel industry is very labour-intensive; for this reason, further job cuts seem to be possible at any time.

After the planned tariffs on washing machines and solar panels, these new steel tariffs represent a continuation of Trump’s “America First” policy, which aims to protect U.S. companies from unwanted foreign competition. This policy harms everyone involved; in fact, it is initially American consumers themselves who will be disadvantaged, as it can be assumed that the increased input costs for production will be reflected in end prices for consumers.

Any further escalation of protectionism remains poison for the global economy. If the EU and China were to also impose trade tariffs in retaliation, there would be a serious risk that the global economic upswing could be abruptly dampened. This would have corresponding negative consequences for the stock markets.

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