ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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On a Trajectory of Trade War

Is something akin to Smoot–Hawley (and the retaliations it provoked) on the cards? 

United States (US) President Donald Trump’s announcement on 1 March to impose a 25% import tariff on steel and a 10% import tariff on aluminium, both on grounds of “national security,” has been widely expected to provoke a trade war. As we go to press, this is yet to break out, but without sounding alarmist, one needs to add that a trade war between the world’s major economies would lead to a significant contraction of world trade. In turn, this could result in deep recession in the world economy, which would, no doubt, exacerbate the ­already tense geopolitical strains. Indeed, riding high on his nationalistic “America First” tirade, Trump seems to be bent on generating such a dénouement. Ranting against unnamed countries that had “destroyed” the aluminium and steel industries of the US, he went on to justify the big import tariff impositions: “When it comes to a time when our country can’t make aluminium and steel, then you almost don’t have much of a country.” 

The announcement of the import tariffs came at a meeting with a group of top executives of the US aluminium and steel industries, suggesting that domestic steel and aluminium prices and profits were the prime considerations in arriving at the ­decision. What impact the import tariff impositions would have on the costs of production of the automotive, aerospace, construction, machinery, and many other steel and/or aluminium-based industries, and, in turn, on their international competitiveness, did not seem to matter. On 6 March, Gary Cohn, Trump’s chief economic adviser and head of the National Economic Council, who had spearheaded the earlier massive corporation and income tax cuts, resigned. A former top Goldman Sachs executive, Cohn reportedly sided with Trump’s “national security” team, H R McMaster, Rex Tillerson, and Jim Mattis, US National Security Advisor, Secretary of State, and Defense Secretary ­respectively, who opposed the import tariffs on the plea that such an imposition would alienate Washington’s main “security” allies—Germany, France, Japan, Canada, and South Korea. 

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Updated On : 16th Mar, 2018


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