For months now you have heard rumblings about the possibility of a trade war between the United States and most likely China. On Friday one become a good deal more likely. The Secretary of Commerce Wilbur Ross stated that the United States may resort to quotas for steel and aluminum imports. This would also involve a minimum 24 percent tariff on a any steel imported from outside the country.
This is the most striking example so far that the administration of President Donald Trump is getting serious about the promised protectionist policies. The Chinese were not at all happy about the Commerce Department recommendations made Friday. China’s trade remedy and investigation bureau chief Wang Hejun from their Ministry of Commerce argued against the proposed policy on two grounds.
First, he claimed that the United States already maintains excess levels of protection against both steel and iron goods. On his website he noted China’s second objection that such a recommendation does not match up with the facts.
Most importantly, Wang issued a warning against U.S. trade protectionism with:
“If the final decision impacts China’s interests, China will certainly take necessary measures to protect its own rights.”
The trade threat against China on steel is not a new one. The country has found itself unpopular around the world for years for its effective excess production of the industrial metal. What is new is the focus on global aluminum exports. This chart shows past U.S. steel and aluminum imports from China:
China has increased its foreign shipments of aluminum for three consecutive months as of January. Meanwhile their steel exports have declined to the smallest amount in roughly five years as their own growing industries have absorbed domestic steel production.
The targeting of China could become more deliberate still with the pending tariffs and quotas. Ross opened this possibility in a meeting with congressmen about specifically focusing the trade protectionist measures. Under this scenario, Ross argued President Trump might erect a 53 percent steel tariff on only the imports coming from a list of 12 nations.
This list covers such countries as China, South Korea, India, and Russia. It would permit allied nations like Germany, Japan, and Canada to be exempt from prospective tariffs. If the Japanese are not spared, they could possibly threaten retaliation themselves.
Kobe Steel Limited has already opined that there might be ramifications. Second largest Japanese steel manufacturer JFE Holdings Inc. stated that it would meet with relevant parties about a response after it studies the American announcement more carefully.
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A trade war with China (and South Korea) would be bad for American consumers and investments alike. If it extended to Japan as well, it would potentially be very serious. This involves more than just higher prices on household items such as washing machines. If retaliation becomes significant enough to constrict global trade, you can believe the stock market will be negatively impacted. The good news is that you do not need to lose any sleep over worrying that a potential trade war will negatively impact your retirement holdings.
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