Trade War 2.0: Trump Imposes 25% Steel and Aluminum Tariffs, Europe Strikes Back

As US-EU tensions increase, the future of global trade is uncertain

With former President Donald Trump reintroducing sweeping 25% tariffs on imports of steel and aluminum, the US-EU trade war has heated up. Europe has quickly responded by enacting countermeasures that target American industries. Is the globe on the verge of another massive trade war, given how vulnerable global supply networks are already?

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The First Global Tariff Escalation Under Trump 2.0

With the imposition of high tariffs on foreign steel and alumina, similar to what he undertook in 2018, Trump is once again pursuing the arena of national security and protection of the economy. With a 25% tariff on steel products and 10% on aluminum items, the measures seek to benefit domestic production but could have heavy side effects on the economy in the opposite direction. 

According to data from the U.S. Department of Commerce, steel imports constitute over 30% of total U.S. consumption, with important suppliers being Canada, the European Union, and Mexico. Trump would like to curb the imports to help reduce dependence on foreign metals and revamp manufacturing jobs in the states.

What is causing Trump to impose these tariffs once more?

• Preserving American Jobs: According to Trump, unfair competition has made American steel producers less strong.
  
  
• Reducing Trade Deficit: Trump wants to reduce the $185 billion trade deficit that exists between the US and the EU.
  
  
• Increasing National Security: According to his government, relying too much on imported steel could pose a security threat.

Although the action is well-liked by local steelworkers, detractors caution that it may increase costs for US companies and lead to retaliatory levies from international allies.

Europe Responds: Counterattacks and Their Effects

The European Union immediately established a tasty package of countermeasures in response to Trump's duties, mostly targeting US goods valued at €26 billion. Ursula von der Leyen, president of the Commission, proclaimed the US tariffs "unjustified and harmful" and swore that European industry should be safeguarded.

What Does the EU's Retaliation Package Contain?

• Tariffs on Motorcycles, Jeans, and American Whiskey: Levi Jeans and Harley Davidson, two well-known American businesses, will be subject to new taxes.
• Increased Duties for Agro Products: Orange juice, corn, and soybeans are subject to higher tariffs.
• Limitations on US auto and technology imports could force European businesses to return to US vendors. 

Direct Effect on International Trade

• Due to rising American steel prices, European companies are increasingly searching for other sources.
  
  
• As retaliatory tariffs reduce the competitiveness of their products, US exporters anticipate market losses.
  
  
• As investors grow more cautious of economic slowdowns brought on by trade tensions, stock market volatility rises.

Analysts estimate that if tensions continue to rise, the world economy may lose up to $150 billion in trade volume per year, according to Bloomberg.

Steel and aluminum imposed tariffs on metal used to make cars and appliances

Since steel and aluminum are directly used as vital inputs in other industries, taxes on these materials affect more than just automakers.

Which Industries Are Most Impacted?

• Automobile Industry: US automakers import steel to create automobile engines and frames. Customers would pay more for cars as a result of the higher cost. 
  
  
• Construction and Infrastructure: Today's builders employ aluminum for bridges, buildings, and even pipelines. Some initiatives would be slowed by the cost increase.
  
  
• Electronics and Appliances: Since lightweight aluminum is used in laptops, refrigerators, and airplanes, tariffs will inevitably affect both the technology sector and the aviation sector.

According to a report by the American Iron and Steel Institute (AISI), tariffs imposed in 2018 caused a 30% increase in the price of steel in the United States, which most businesses were unable to absorb. A price increase for consumers could be imminent if history is repeated.

Who Gains and Who Loses from Winners and Losers?

Tariffs have a complicated effect even if they are intended to safeguard the US metal industries.

US Steel & Aluminum were the winners

• Producers: There might be a rise in demand for domestic producers.
• Local Metal Workers: Ohio and Pennsylvania, two states that produce steel, may see an increase in employment.

US automakers and builders are the losers

• Production budgets are impacted by rising input costs.
  
  
• European Exporters: EU companies lose money as a result of limited access to US markets.
  
  
• Customers: It is anticipated that prices for electronics, appliances, and cars will rise.

"History Repeated Itself" is the expert opinion

International trade expert Dr. Michael Henso stated, "The United States has implemented tariffs in the past, and each time it has resulted in economic slowdowns rather than growth." "Theoretically, protecting homegrown industries sounds great, but the benefits are typically outweighed by retaliation from other countries."

The Way Ahead: Will This Lead to Complete War?

The US-EU trade impasse has become a tariff war that has been predicted to continue because neither side has budged on the tariff discussion front. Experts caution that higher tariffs could result in:

• Concerns about a worldwide recession since decreased commerce would impede GDP growth;
  
  
• Job losses in industries focused on exports—the majority of businesses may just pass on tariffs to customers;
  
  
• Increased Political Friction: Washington will have a very difficult time in the upcoming negotiations.

Is There a Chance of a Resolution?

It might be necessary for both parties to resume talks before the unhappiness turns into much more serious consequences. A second Trump administration or the Biden administration, for instance, may barter even more crucial agreements, but doing so will not be simple.

Fearing negative economic consequences, some US senators are already putting pressure on the White House to renegotiate tariffs, according to Reuters. 

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Conclusion:

Economic uncertainty has been created by Trump's 25% steel and aluminum tariffs, which have rekindled trade hostilities between the US and Europe. Although the action is intended to safeguard American companies, it is impossible to overlook the repercussions on international supply chains, markets, and consumer costs.

Businesses and consumers will be caught in the middle of a full-scale trade war as a result of the EU's quick reprisal. Whether the globe shifts toward negotiation or more economic confrontation will be decided in the coming months.