Why Trump’s trade war really matters

The commentary on Trump’s new tariffs on steel and aluminium in my view have missed a central point. Most have pointed out (rightly) that this will lead to tit for tat tarrifs from the US major trading partners, but the most immediate affect will be on some of the biggest and most competitive manufacturers in the country.

Take Boeing. Boeing is in global competition with the European Airbus who both manufacture large airliners costing anything up to $300 million at a time. Although competition is largely about technical innovation and quality, there is still a large part of it on price. Much of the raw materials used are steel and aluminium. By putting tarrifs on both those materials, there will be an unnecessary increase in costs for Boeing which may tip the balance in competitiveness in future with Airbus. Boeing will source steel and aluminium at prices 10-25% higher than Airbus. Both companies will continue to source materials from the most competitive global suppliers – not US steel manufacturers who currently are nowhere near competitive in specialised materials manufacturing necessary for airliners. It is a disaster for Boeing.

And they are not the only ones. The US has by far the biggest armaments industry in the world. Both these materials are used widely in arms manufacturing. It does put them at a relative disadvantage.

Similarly with auto manufacturing. Major US owned car brands (GM, Ford) are not major exporters of cars from US factories, but they do have significant internationally competitive manufacturing plants in places like China, Mexico and Thailand from which they source significant exports. This tarrif decision may well tempt them to source even more US sales from these foreign factories. Similarly, most major European, Japanese and Korean manufacturers have set up manufacturing plants in the US, they too will no doubt go the same way as US owned manufacturers. It will also affect the emergence of high tech stars like Tesla, who must now be reviewing where they will they locate their factories for a global roll out in view of the uncertainty created by this idiotic decision.

The US only has itself to blame.

 

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