US stock markets tumbled on Thursday after Donald Trump said the United States would impose tariffs of 25% on steel imports and 10% on imported aluminum next week.
The threat of a trade war with China and higher goods prices led to a sharp sell-off with the Dow Jones Industrial Average initially lost over 570 points, with heavy losses for manufacturers like Caterpillar and Boeing. It closed down 420 points and the S&P 500 and Nasdaq both dropped on the day.
Trump campaigned on the promise of protecting the US steel industry but until now has done little to make good on those promises.
But at a meeting with US industry officials at the White House, Trump vowed to rebuild American steel and aluminum industries, saying they had been treated unfairly by other countries for decades.
“Or if they did, then they should be ashamed of themselves because they’ve destroyed the steel industry, they’ve destroyed the aluminum industry, and other industries, frankly, when you look at all the plants, the car plants, automobile plants that moved down to Mexico for no reason whatsoever, except we didn’t know what we were doing. So we’re bringing it all back.”
His comments followed an early-morning tweet from Trump that said the steel and aluminum sectors needed protecting from unfair trade drove shares in domestic industries sharply higher.
AK Steel Holding was up 2.8%, US Steel Corp was up 2.3% and Nucor rose 1%. By contrast, industrial stocks such as Boeing fell, with traders citing tariffs, which would hit manufacturers.
The administration says duties would protect US industry, but critics say they would raise costs for industry and fail to deliver on a campaign pledge to boost domestic jobs.
Trump tweeted on Thursday that American steel and aluminum companies needed “free, fair and smart trade”. Trump has indicated he favors a duty of 24% on steel imports.
The administration has also cited national security interests for its action, saying the United States needs domestic supply for its tanks and warships. The Department of Defense has recommended targeted steel tariffs and a delay in aluminum duties.
Although China only accounts for 2% of US steel imports, its massive industry expansion has helped produce a global glut of steel that has driven down prices.
China has indicated it could retaliate against US steel tariffs by targeting imports of US agricultural commodities, such as soybeans of which America is the largest supplier.
Trade tensions between the United States and China have risen since Trump took office in 2017 and the administration is also pushing on what it regards as forced technology transfers to China.
Shares of Asian steel producers such as South Korea’s Posco and Nippon Steel fell overnight.
While American steelmakers lost three-quarters of their jobs between 1962 and 2005, a major study by the American Economic Association showed that much of this had been due to improved production technology as output per worker rose fivefold.
“Thus, even if trade protection leads to increased domestic production, increases in employment may be far less than many hope,” a report from the highly regarded independent Econofact economist network said last week.
Consumers of steel and aluminum have lobbied hard against the tariffs. Econofact said in its report that 2 million jobs were in industries that use steel “intensively”, including auto parts, household appliances, farm machinery and oil equipment.
Jobs in the consuming industries are concentrated in California, Texas, the north-eastern and midwestern states that comprise the rust belt and states in the south-east.
“Across many states, the number of jobs adversely affected in these steel-using industries could far exceed any steel jobs saved,” Econofact warned.
“Past experience also shows that unilateral action like Section 232 tariffs will invite retaliation. The Bush-era steel tariffs led many countries to target politically sensitive US exports like Florida oranges and North Carolina textiles.”
Content retrieved from: https://www.theguardian.com/