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moneymetals

Trump Says the U.S. Will Win Any Trade War; Our Debt Load Says Otherwise

Donald Trump fired off some major new shots in the global trade wars. With the exception of imports from Canada and Mexico, steel entering the U.S. will be subject to 25% tariff and aluminum will be taxed at 10%.

The president’s trade policy has been applauded by people seeking to protect domestic industry and criticized by free marketeers. There is no shortage of disagreement over the policy, but some of the outcomes seem easier to predict.

Rising prices

Higher price inflation is one probability.

Domestic manufacturers who use steel and aluminum are going to pay more for those metals and will need to raise prices. A wide gamut of goods ranging from airplanes and automobiles to steel building materials will soon cost more.

Unfortunately, the higher costs will put domestic manufacturers who must buy steel and aluminum at a disadvantage.

While they pay more for imports from Europe or Asia, the cars and appliances manufactured elsewhere and shipped into the U.S. aren’t affected.

Goldman Sachs estimates the steel tariffs will cost Ford and General Motors each $1 billion in profits. Imported models suddenly get a major cost advantage in the U.S. marketplace.

There is also the possibility of higher inflation driven directly by the foreign exchange markets.

Disgruntled trading partners may choose currency warfare as their response to tariffs. This would involve liquidating dollars they hold as reserves. In the case of China, Japan, and the EU, those stockpiles are enormous.

​Continue to the full article (source) ​

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