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Implications for the Caribbean... as US imposes tariffs on steel, aluminium

Published: 
Sunday, June 24, 2018
Dr Roger Hosein

The Trump administration imposed tariffs on steel and aluminium imports from Canada, Mexico, and the European Union effective June 1, 2018. The implementation of the tariffs are designed to protect the US steel and aluminium industry from foreign producers that undercut domestic prices.

The Trump administration said protecting these industries is a matter of national security importance. Trump also stated there is a real issue with global steel markets called “overcapacity”, where there are too many producers making too much steel, the consequence of which is unfair trading practices (such as dumping) at times.

Canada is the biggest supplier of steel and aluminium to the US, accounting for around 17 per cent of the US imports in 2017. The Canadian Prime Minister, Justin Trudeau, stated that Canada would impose a 25 per cent tariff on steel items and a ten per cent tariff on the consumer goods (effective July 1, 2018) in response to the US aluminium and steel tariffs imposed on Canada. Canada has not narrowed its retaliatory tariffs as a wide variety of food products—from yoghurt to orange juice, condiments, whiskey to paper products, plastic household goods, hardware products, domestic appliances, dishwasher detergents, etc are included.

Steel is produced in five Canadian provinces, providing employment for approximately 22,000 people in Canada. About half of Canada’s steel production is exported, and most of it goes to the US. As a result of the 25 per cent tariff, US demand for Canadian steel will fall. Canada’s steel and aluminium industries could lose US$3.2 billion annually in exports to US due to the tariffs. One estimate is that approximately 6,000 jobs will be lost in the Canadian economy as a great number of people are reliant on the steel industry as their means of employment. GDP will take a hit of 0.11 per cent.

Canadian consumers can expect to pay a bit more for products that are imported from the US, which are largely made of steel and aluminium (canned foods/drinks, refrigerators, cars, etc) as the prices would be higher for Canadians under the new tariffs.

The USA also imposed tariffs of 25 per cent on steel and ten per cent on aluminium from China, which took effect on March 23, 2018. China retaliated by targeting 128 US products (including fruit, wine, ethanol, and steel pipes) worth around $3 billion, under tariffs of 15 per cent and 25 per cent, which was effective on April 2, 2018. The US then took new steps in an effort to reduce a $337 billion trade deficit with China and announced that on June 15, 2018, that tariffs on $50 billion worth of Chinese goods (targeting the Chinese aerospace, robotics, manufacturing, and auto industries) would be subject to a new 25 per cent tariff starting July 6, 2018

On June 16, 2018, Beijing announced it would retaliate against new US tariffs, saying that it would “immediately introduce countermeasures of the same scale and strength.” China’s finance ministry said it would commence imposing its own 25 per cent tariff on 545 categories of US products worth $34 b including soyabeans, beef, whiskey, and off-road vehicles on July 6. China also threatened to add a further $16 b, targeting US energy exports such as coal and crude oil.

On June 18, 2018, at the brink of a trade war between the world’s two largest economies, President Trump ordered his administration to draft plans for tariffs on a further $200 b in Chinese imports if Beijing does not abandon its intention to retaliate against US duties on imports previously announced.

THE POTENTIAL EFFECT

These trade wars and rumours of wars, may have ramifications for the Caribbean. The impact of the tariffs on the aluminium market can have significant effects on Caribbean countries including Jamaica, Guyana, and Suriname as exporters of bauxite ore and alumina. The tariffs on China, for example, could change the dynamics for China’s investment into Jamaica’s alumina production and divert its plans for future investment. Suriname is looking for an increase in Chinese investment in its bauxite industry, while Guyana is seeking to revive its alumina production and are looking to Chinese investors to move this forward.

From an international trade perspective, tariffs can compromise the volume of international trade and in so doing, slow the growth of world GDP with implications for commodity prices, tourism flows, and remittances. It is likely that this would be short-lived as economists work through and publicise the associated economic consequences.

DR ROGER HOSEIN
Senior lecturer in Economics, UWI
 

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