Trump’s tariff plan a threat to global economy
Debt watcher S&P Global Ratings warned on March 12, 2018 that US President Donald Trump's plan to hike tariffs on steel and aluminum threatens global trade, as it could invite retaliatory action from other countries.
"While the direct or first-round macroeconomic impact of these tariffs is likely to be negligible, the overall impact is less certain. It would depend on the response of other major U.S. trading partners; namely, the EU, China and South Korea," S&P said.
It noted that many US trading partners have already signaled their concern at the announcement and have stated that they are prepared to retaliate with their own tariffs on goods imported from the US.
More important are the potential second-round effects on consumer and business confidence and spending, which would ultimately drag down GDP, it said.
"Although we don't expect a full-scale trade war, such an outcome is not assured. The initial US tariffs could lead to an escalation of punitive, retaliatory tariffs by trading partners despite the known welfare damaging effects," said S&P Global Ratings economist Paul Gruenwald.
"The overall economic impact of the tariffs on the US over the near term is likely to be minimal, with a mixed impact on corporate sectors," S&P Global Ratings said in a report, titled 'Global Trade At A Crossroad: US Steel And Aluminum Tariffs Raise Risk Of Retaliatory Spiral."
"US domestic steel and aluminum producers are likely to benefit from the tariffs, while certain other corporate sectors would suffer from higher input costs," said S&P Global Ratings credit analyst David Tesher.
"Posing a greater threat is the risk of retaliatory action by major U.S. trade partners such as the European Union (EU) and China triggering a trade war, hurting American exporters, global trade, and global economic growth," Tesher said.
S&P said the tariffs will likely encourage US production of steel and aluminum, raise utilization rates and keep domestic prices elevated over the next two to three years.
Any gains could be temporary, though, if the U.S. were to return to a less-protectionist stance, it said. "As such, we could see positive rating actions in the next 12 to 24 months among U.S.-based metals and mining downstream borrowers most exposed to steel and aluminum prices–particularly those in the 'B' ratings category and other speculative-grade companies."
Meanwhile, the aerospace and defense, capital goods, and midstream energy industries are likely to suffer from higher input costs, the credit rating firm said.
US steel imports represent 2 percent of global production, while aluminum's proportion is 6 percent. "However, the tariff for aluminum is lower. Consequently, we do not see steel and aluminum production that would have otherwise been bound for the US flooding global markets," it said.