New Tariffs on Steel and Aluminum in the Global Economy: A Trade War?
Following a recent news announcement about the imposition of tariffs from the USA has shaken the markets, and for now, most traders are concerned about the consequences. Will we see a potential trade war? These measures have been labeled as protectionist, and international concern has grown. Announced within a protective context, these measures aim to strengthen the U.S. industry but could also trigger a series of reactions in financial and commercial markets.
Trump’s Protectionist Strategy and Its Motives
From the outset, the elected president’s goal has been to promote an economic policy based on protectionism, aiming to reduce the trade deficit and strengthen domestic production. In this context, the tariffs imposed aim to curb imports of steel and aluminum from countries such as China, Canada, and Mexico, benefiting U.S. producers. However, this measure is expected to trigger trade retaliations, such as Brazil's recent rumors to impose tariffs on tech giants as a countermeasure.
Impact on Financial Markets
The tariffs have set a new course in the volatility of financial markets, particularly in the industrial and manufacturing sectors. Headlines like Ford’s CEO speaking out against tariffs were seen in the second week of February. Some effects of the new tariffs have been:
- DXY Dollar Index: Following the announcement, the dollar showed moderately volatile fluctuations. This was likely because investors had already priced in the information days earlier, and on the other hand, the impact on the competitiveness of U.S. exports was a topic circulating in the markets.
- Manufacturing Company Stocks: Companies like Boeing and General Motors saw declines in their stock prices due to possible increases in production costs. However, the drops were not as severe as the first time Donald Trump announced 25% tariffs on Mexican exports and a similar levy for Canada.
- Precious Metals: So far, gold has accelerated its ascent within the bullish trend it began following the first rumors of tariffs. Now, with the tariff situation on steel and aluminum, gold has become the "safe-haven" asset. It is just a few dollars away from hitting the $3,000 per ounce barrier.
As markets react to trade tensions, sharp fluctuations in the dollar index could occur, affecting not only the competitiveness of U.S. exports but also foreign investments and monetary policy. However, the real challenge will be how countries manage their reserves and diversify their markets.
Reactions of Affected Countries
Trump’s decision has sparked spontaneous reactions from steel and aluminum-exporting countries, some of which have threatened trade retaliations, such as:
- China: Has described the tariffs as unjustified and has hinted at potential countermeasures, including an antitrust investigation into the American company Google.
- Canada and Mexico: These countries have expressed concern, as they are heavily dependent on trade with the U.S. for these metals. For now, both have "bought time" in negotiations.
- European Union: Has warned about the possibility of imposing tariffs on U.S. products in response, some of which could include Harley Davidson motorcycles and Levi’s jeans. These measures aim to balance the economic impact and apply pressure for a negotiated resolution.
What Would Happen if a Trade War Occurs?
The initial blow of a trade war would be immediate. The retaliatory tariffs from countries like China, Canada, Mexico, and the European Union could damage both exports and diplomatic relations, putting companies on the front line. Companies of all sizes and sectors would be forced to adjust their supply chains, which would impact on their profit margins and, in many cases, raise production costs, ultimately increasing prices for consumers. Practically, many sectors would become more expensive.
In the worst-case scenario, economic growth rates would decrease, creating a scenario that could extend beyond the steel and aluminum industries. Sectors such as technology and automotive would also get caught in the tariff battle, shifting costs to consumers. This trade war would not only be a dispute over tariffs but a battle for global leadership in key sectors such as advanced technology, e-commerce, and manufacturing production.
Conclusion
The new tariffs on steel and aluminum implemented by Donald Trump have caused a significant impact on global negotiations, affecting both industry and international trade relations. As the affected countries respond with potential retaliations, it will be crucial to observe how trade tensions evolve and how they impact the economy. Will these measures truly strengthen the U.S. economy, or will they trigger a new wave of trade conflicts? It is difficult to predict the future, and many consider that these tariff strategies, as a trade tool, will ultimately fail.
