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Mr. Trump to Impose Stiff Tariffs on Steel and Aluminum


John Hjorth
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New York Times [2018.03.01]: Trump to Impose Stiff Tariffs on Steel and Aluminium.

 

I don't want to discuss US politics here but more the consequenses for the economic environment that we are investing in, each of us our own way.

 

Personally, I feel like Moses standing at the Red Sea here. I have absolutely no idea about what will happen.

 

Any shared thoughts about it in this topic from my fellow board members are much appreciated.

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I think it's very convenient to blame today's drop on Trump's announcement. I personally believe we ran through virtually every possible positive catalyst for the market, and now we're at a point where virtually all news becomes neutral or a little negative. The market can only run white hot for so long before the pendulum swings the other way. With market valuations sky high, consumer confidence hitting decade long highs, and employment above full employment levels (Powell's words, not mine), all it takes is a little spark to blow this market up. Even this morning, all I have seen is complacency by the "experts". When everyone is waiting for the blow-off top phase of the market, maybe, just maybe, we actually just went through that phase, and were setting up for a deep decline.

 

I can't say whether we go into recession or not, but I personally feel that we should enter a bear market, even if it is only to clear epic risk-taking and bring valuations back from nosebleed levels.

 

In any case, I'm speaking my book, so clearly there's a lot of bias in my writing here.

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John, it's hard to tell the impact without knowing the specifics. Will it be a blanket tariff applied equally to all countries? Or a targeted one aimed, say, at China? Not the same impact, obviously. Maybe Mr. Trump will change his mind after seeing today's market reaction.

 

I'm following this twitter account for updates, colour commentary and comic relief. He is a trade lawyer at Cato Institute.

 

 

BTW, Canada is #1 steel exporter to the U.S. China is #11.

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John, it's hard to tell the impact without knowing the specifics. Will it be a blanket tariff applied equally to all countries? Or a targeted one aimed, say, at China? Not the same impact, obviously. Maybe Mr. Trump will change his mind after seeing today's market reaction.

 

I'm following this twitter account for updates, colour commentary and comic relief. He is a trade lawyer at Cato Institute.

 

 

BTW, Canada is #1 steel exporter to the U.S. China is #11.

 

Do you know if steel and aluminum are major imports for the U.S.? I believe I read/heard that it isn't a very big import, and it becomes a convenient way to act tough on trade in some ways.

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Do you know if steel and aluminum are major imports for the U.S.? I believe I read/heard that it isn't a very big import, and it becomes a convenient way to act tough on trade in some ways.

 

33% of steel is imported.

https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

 

90% of aluminum is imported.

https://www.reuters.com/article/usa-trade-steel-aluminium-ahome/column-which-sledgehammer-will-trump-use-on-u-s-aluminium-imports-andy-home-idUSL8N1QA3W1

 

Canada is the #1 exporter of steel and aluminum. Maybe he is trying to use tariffs as a leverage in NAFTA negotiations.

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Seems weird to do this at the same time as you want to do a big infrastructure push.

 

Market seems scared of potential of a trade war, which typically makes all sides lose, and nobody win.

 

Benefit to US as a whole of cheaper steel must be bigger than the size of whatever gain US steel production would get from tariffs... Oh well.

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Seems weird to do this at the same time as you want to do a big infrastructure push.

 

Rob Porter was the point man on trade in the White House. He recently resigned over domestic violence allegations. Protectionist hard-liners gained influence after Porter's resignation. That might explain the timing.

 

Peter Navarro is Ottawa’s worst nightmare – and he’s gaining influence

https://www.theglobeandmail.com/opinion/peter-navarro-is-ottawas-worst-nightmare-and-hes-gaining-influence/article38128099/

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https://www.nytimes.com/2018/03/01/upshot/trump-tariff-steel-aluminum-explain.html

 

The action may create some jobs in metals-producing industries, cost some jobs in fields where steel and aluminum are inputs, and push consumer prices a bit higher. The large and dynamic United States economy can handle it.

 

The risk comes from the potential ripple effects.

 

Affected countries may well retaliate by ordering tariffs on American goods, and they could carefully target goods to cause economic or political pain. American exporters — whether they sell passenger airplanes or soybeans — should be nervous about the next shoe to fall. There are few winners in an all-out trade war like one that enveloped the world economy in the 1930s.

 

In particular, the Trump administration’s invocation of national security concerns could set a precedent in which China and other nations are willing to use national security as grounds for tariffs, hurting the ability of the World Trade Organization to arbitrate disputes.

 

The real risk isn’t that steel and aluminum are a bit more expensive, though that is likely to be the case. It is that an entire system of global trade that the United States built might be undermined.

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Do you know if steel and aluminum are major imports for the U.S.? I believe I read/heard that it isn't a very big import, and it becomes a convenient way to act tough on trade in some ways.

 

33% of steel is imported.

https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

 

90% of aluminum is imported.

https://www.reuters.com/article/usa-trade-steel-aluminium-ahome/column-which-sledgehammer-will-trump-use-on-u-s-aluminium-imports-andy-home-idUSL8N1QA3W1

 

Canada is the #1 exporter of steel and aluminum. Maybe he is trying to use tariffs as a leverage in NAFTA negotiations.

 

LOL, if 90% of the Aluminum is imported, it’s too lat to do tariffs,the trade war is already lost and the only thing tariffs so is to make it more expensive for consumers (car industry etc) and cause retaliation.

 

Dumbest idea ever, IMO. We had steel tariffs against certain producers (EU, China, Japan) on and off since the 1980‘s.

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BTW, Mr. Linciome's landmark paper was referenced to elsewhere before on this Board, in a thread that discussed US-China protectionism.

Here it is again:

https://assets.realclear.com/files/2017/08/662_pa819.pdf

In that paper, the historical effects of the steel industry tariffs are well covered.

For those who want to dig further:

http://www.tradepartnership.com/pdf_files/2002jobstudy.pdf

 

Anyways, the key aspects of tariffs are not the immediate effects but the second-order effects and the unintended consequences.

If this is part of a very shrewd and focused plan to help restore balance in some specific areas or even if this is simply to "protect" some industries of related party (national?) interests, then OK.

However, the slippery slope involves the possibility of retaliation. After a while, who remembers who started first?

 

If we are on our way to a retaliation spiral, then the following may be helpful:

https://www.clubforgrowth.org/assets/files/smooth%20hawley%20ny%20times%2005%2005%2030.pdf

 

I'm not saying that we are in a 1928 style re-play, and who cares about economists. But maybe they had a point. Just wondering if we are much wiser today.

 

There are imbalances but it seems to me that the downward curve of the ratio of duties collected to dutiable imports that is characteristic of the last 70 years has a strong inverse correlation to our global quality of life even if it may not feel like it.

https://www.marketwatch.com/story/may-not-feel-like-it-but-the-worlds-improving-really-and-heres-the-proof-2018-03-01

 

Exchange nurtures peace. Handle with care.

 

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John, as others have said what this means will depend on the details of the actual order. But the basics are these:

 

The US just increased the price they pay for steel by 25% and the price they pay for aluminium by 10%. This will mean that the price will rise for a whole host of products - steel and aluminium go into lots and lots of things. This is fantastic news for US steel producers which just hit the jackpot and will turn in fantastic profits. There's not much aluminium production in the US so that's not so significant, but hey if you have a smelter then hey, great news.

 

If I was an American (that wasn't a steel worker) I would hate this. But as a Canadian I'm not so worried about it despite the fact that Canada is the largest exporter of steel and aluminium to the US. This action is likely to give a huge advantage to Canadian auto and machinery manufacturing as well as other heavy industries.

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I wouldn't be so sure. If US Steel prices for HRC is $800, then non-US sourced steel would have to be sold around $630 including shipping. Chinese steel ex works for export at around around $600 a ton for HRC, and has been in the $500s per ton for some time now. CRC has a similar margin difference compared to US steel prices.

 

If US Steel prices retain there current price levels, or go up, global producers could easily make a healthy margin in the $600 per ton range, and even lower price to boost share.

 

China is the top dog, however. All because their imports to US don't show up on a graph, they cause huge global fluctuations in price because of their huge impact on both the demand and supply side of the market. They flood other countries with steel, lowering the price. Look at a steel price chart over past 15 years, its bonkers.

 

I do not know how it will play out for aluminum, but it will surely be interesting how it affects steel prices on a global scale.

 

The market clearly thinks that US Steel producers are going to benefit greatly (despite having sub par operations) and auto's are going to suffer (despite having strong sourcing abilities). Further, this could also make investments into lowering the cost to produce carbon fiber and other materials that much more promising.

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Scott Lincicome again:

 

 

Interesting how many "people" with, like, 200 tweets, no avi, and a bunch of numbers in their @ handle have entered my TL today to defend tariffs & trade wars

 

If you were Vlad Putin and you wanted to undermine world trade order, what would you differently?

 

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Scott Lincicome again:

 

 

Interesting how many "people" with, like, 200 tweets, no avi, and a bunch of numbers in their @ handle have entered my TL today to defend tariffs & trade wars

 

If you were Vlad Putin and you wanted to undermine world trade order, what would you differently?

 

 

Step 1, create handles with no numbers. ?

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Step 1, create handles with no numbers. ?

 

That's funny, thanks for the laugh.

 

My question wasn't about Russian bots attacking Mr. Lincicome. It was in reference to Trump's policy.

Yep! Pretty funny. Also a testament that the intelligence of the human race has perhaps been exaggerated.

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I heard Trump talking about this, he really can be ain ignorant moron sometimes.  He says they are “dumping” cheap steal on us. Damn I hate it when someone gives me a bargain on something I wish to buy. Just “dumping” inexpensive items on me.  It must piss people off when Walmart dumps cheap products on them at a good price which others can’t match.  Oh wait that does bother people, which is why people fight just about every planned Walmart coming into their community.  The difference is that it used to be only the left who didn’t understand economics.  I think he should next put a huge tariff on bananas to encourage US farmers to build huge greenhouses to produce them here.  Think of the US jobs that would create. Coffee too, all that cheap coffee from overseas and Kona being so expensive, it just isn’t fair that Columbia can just dump coffee on us.

 

Someone mentioned above that it will have a small impact on the economy, but not if you are in the building profession.  I wonder if this will put a damper on the skyscraper boom in NYC?

 

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That's hilarious, rkbabang! Thanks to all for comments and links to good stuff about this to read in the weekend.

 

- - - o 0 o - - -

 

It's all over the place today here on the Eastern side of the Atlantic Ocean. Just about everybody describes it as an own goal. Well, and the market certainly does not welcome it either.

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If Canada had a strong leader, he would have realized that the U.S. could become a tougher place to trade with. Maybe less reliable than it used to be and capable to take strong actions. Hence the opportunity to expand exports and be a supplier of choice: LNG, oil, wood, grains, potash, uranium you name it.

 

Unfortunately, we are led by a group of people who think about pot, peoplekind and only renewing NAFTA. Dependency is what they seem to like.

 

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