Economics professor Adam Posen has roundly blasted the idea of imposing fresh tariffs on imports of steel and aluminium into the US.
Posen, the president of the Peterson Institute for International Economics, told CNBC the plan was “just straight up stupid,”, adding:
This is fundamentally incompetent, corrupt or misguided.”
Posen also took issue with President Trump’s argument that he was protecting US jobs and industries, as:
Steel is just a tiny input in the U.S. gross domestic product (GDP) — which is why it’s so crazy.
According to CNBC, there were roughly 140,000 Americans employed in steel mills in 2015, while 6.5 million Americans worked in industries that consumed steel. More here.
The Mexican peso is sliding this morning, making it the worst-performing major currency against the US dollar.
Trump’s protectionist stance on trade wars and tariffs are undermining hopes that America could rejoin the NAFTA pact.
EC: We’ll hit back against Trump’s tariffs
The European Commission has warned it will impose countermeasures against America, if new tariffs are imposed on EU aluminium and steel.
EC president Jean-Claude Juncker has vowed to ‘react firmly’ to president Trump’s move, saying:
“Instead of providing a solution, this move can only aggravate matters. The EU has been a close security ally of the US for decades. We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk. The EU will react firmly and commensurately to defend our interests.
The Commission will bring forward in the next few days a proposal for WTO-compatible countermeasures against the US to rebalance the situation.
Kremlin concerned about Trump’s tariffs
Russia has also expressed concern over Donald Trump’s plans.
In a daily briefing with journalists, Kremlin spokesman Dmitry Peskov said that Moscow shares European capitals’ concern with reports of the adoption of new steel and aluminium tariffs by the United States.
“This situation deserves close attention,” Peskov, who serves as a personal spokesman to Russian President Vladimir Putin, told journalists by phone.
“We know that extreme concern has been expressed in many European capitals with these kinds of decisions.
We share this concern and are carefully analysing the situation which is unfolding now in trade relations after this announcement.”
Markets suffer heavier losses after Trump tweet
Stock markets are falling deeper into the red, following Donald Trump’s declaration that America could easily win a trade war.
In London, the FTSE 100 is now down 73 points, or 1%, at 7101. That’s a new three-week low.
Mining companies are suffering from the prospect of protectionism – as demand for iron ore, coal, copper, oil and nickel would all weaken.
Germany’s DAX is still lurching around a six-month low.
Lukman Otunuga, research analyst at FXTM, says investors around the globe are worried:
A negative vibe lingered across financial markets on Friday, after Donald Trump’s vow to impose severe tariffs on imports of steel and aluminium sparked fears of a global trade war.
In a move that dealt a blow to global sentiment, Trump said on Thursday that the United States would set tariffs of 25% on steel imports and 10% on aluminium.
This bombshell development is likely to fuel concerns of retaliatory actions from major US trade partners consequently weighing on risk appetite. Investors are clearly jittery by the threat of a potential global trade war and its possible effect on stock markets.
Wall Street is also expected to suffer falls when it opens in three hours time.
The Dow Jones industrial average is being called down around 200 points, or 0.9%. That would add to yesterday’s 420-point tumble.
Trump: America can win big in a trade war
Newsflash: President Trump has tweeted that it will be easy for America to win a trade war:
That’s unlikely to calm nerves in the financial markets….
David Lowe, head of international trade at law firm Gowling WLG, predicts that president Trump could announce more protectionist policies in the weeks ahead.
“All the figures suggest that the first year of any administration is the calm before the storm. The groundwork is done and the wind builds. Now Trump’s first year is complete with the potential for the floodgates to open, it’s safe to assume this may not be the only shock policy announcement.”
A recent report from Gowling found that the USA has the biggest protectionist stance across the world. Since 2009, it has made 1,085 more protectionist measures more than liberalising ones.
Anders Fogh Rasmussen, the former head of Nato and ex-Danish prime minister, warns that tariffs will hurt a range of US businesses who use steel.
He also fears that Europe could face pressure to become more protectionist too.
Canada, Brazil and Russia will all be hit hard by new tariffs on steel and aluminium imports into America, according to the Economist Intelligence Unit.
The countries that will be hardest-hit by the tariff include some of the US’s biggest trading partners.
The commerce department reported that the biggest importers of steel in 2017 were (in descending order) Canada, Brazil, South Korea and Russia. China was 11th, supplying just 2% of the total. For aluminium, the biggest importers were Canada, Russia, China, the UAE and Bahrain. (China supplied 11% of the total.)
The EIU also expect other countries to hit back:
We expect other countries, notably China, to retaliate in kind. The tariffs are a particular snub to the Chinese government, which had sent its leading trade envoy, Liu He, to Washington to discuss the US-China relationship.
Earlier this week, the EIU warned that a trade war would be a major threat to global stability. Yesterday’s comments from Trump haven’t changed that view…
Bank of England Mark Carney is discussing cryptocurrencies now – there’s a live feed here.
German Foreign Minister Sigmar Gabriel said in a media interview that he was“extremely concerned” about Donald Trump’s planned tariffs on steel and aluminum.
“A sweeping move against the rest of world by the US”, Gabriel told the Funke group of newspapers, “would hit our exports and jobs amongst the hardest”.
“I hope that President Trump reconsiders his announcement.
We need to do everything possible to avoid an international trade war.”
The president of the Federal Association of German Industry, Dieter Kempf, described America’s “policy of partition” as a mistake, adding:
“US president Donald Trump is risking a world-wide trade conflict and a spiral of protectionism that will end up also costing American jobs”.
President Trump’s plan to slap tariffs on steel and aluminium imports has gone down badly with the Institute of Economic Affairs, the free-market think-tank.
Kate Andrews of the IEA it will hurt Americans:
Mark Carney has also warned that Bitcoin looks like a bubble, and could have a ‘pretty brutal reckoning’
BoE governor Mark Carney calls for bitcoin regulation
Breaking: Mark Carney, the Bank of England governor, has suggested greater regulatory controls over cryptocurrencies such as bitcoin.
He has labelled them as “ inherently risky” and that they are “failing” to fulfil their most basic function as money.
Carney say governments should “regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system.”
He said Threadneedle Street was currently considering the risks posed to UK financial stability by bitcoin and other digital currencies, and that the Bank would report to the G20 in Argentina later this month.
At present, cryptocurrencies “do not appear to pose material risks to financial stability”, says Carney, but that they “could rise” in future as more people begin to use them.
Speaking in London because the snow stopped him from reaching Edinburgh to deliver a speech at the inaugural Scottish Economics Conference, he said cryptocurrencies were failing to meet the key tests of money set by the 18th Century Scottish economist Adam Smith – the father of modern capitalism.
“Cryptocurrencies act as money at best, only for some people and to a limited extent, and even then only in parallel with the traditional currencies of the users.
According to the governor, bitcoin has been too volatile to act as a store of value – failing a major test set of currencies – while he also said it was an inefficient means of exchange as no major high street retailers accept the digital currency.
Roy Rickhuss, the head of the Community union, fears that jobs will be lost in the UK and the US if these tariffs are imposed.
Conservative MP Simon Clarke is also very concerned about the impact on Britain’s steel industry:
Clarke, who represents Middlesbrough South and East Cleveland, is also vice chairman of the of the All Party Parliamentary Group for Steel.
UK Steel: Trump’s tariffs would hurt British industry
Back to tariffs…. and British unions are very alarmed by the prospect of America imposing swingeing costs on steel and aluminium imports.
Richard Warren, head of policy at UK Steel, fears that president Trump will impose ‘blanket measures’ on all steel imports, regardless of their origin.
Warren says this would be an “extremely blunt” way of tackling the problem of overcapacity in the global steel industry.
This requires a coordinated global approach. Whilst we all too well understand the frustrations of the US sector, measures such as these smack of short-termism, protectionism and would be rife with unintended consequences for global trade and for the users of steel in the US.
“At a UK level, our sector exports some £360 million worth of high-value steel products into the US each year, almost 15% of our exports. These measures, would seriously undermine our ability to compete in this market. Equally there is significant apprehension about the indirect impacts of these measures in the form of steel trade diverted away from the US to other markets, such as the UK. In short, these measures would cause serious damage to the prospects of many steel producers here.
UK Steel is urging Theresa May to push for “a robust response from the EU”, adding:
“If next week’s official announcement does reveal the worst, there is a strong message here for the UK Government as well. In its imagined post-Brexit role as the vanguard for global free trade, it must remember that not everyone is on the same page and not everyone is playing by the same rules.
Whilst we have to resist any urge to mirror such protectionist moves, we must at the same time be clear-eyed and equip ourselves with tools to respond effectively and protect our interests when necessary.”
UK construction activity picks up
Newsflash: Activity across Britain’s building sector picked up last month, but remains weak.
Data firm Markit reports that commercial construction strengthened in February, but civil construction and housebuilding was weaker.
Builders reported that new work decreased for the second month running, while total business activity increased only marginally.
Anecdotal evidence suggested that fragile business confidence and ongoing political uncertainty remained key factors holding back client demand.
This pushed the monthly construction PMI, which measures activity, up to 51.4 from 50.2 (which was close to stagnation).
In other news, the Weinstein Company has been saved from bankruptcy.
The firm, co-founded by disgraced media mogul Harvey Weinstein, is being acquired by an investment team led by billionaire Ron Burkle and Maria Contreras-Sweet, the former head of President Obama’s Small Business Administration.
It had been expected to fold, after talks with Burkle and Contreras-Sweet’s group had hit deadlock.
Contreras-Sweet says the move will save 150 jobs, protect the small businesses who are owed money and create a victims’ compensation fund for those who suffered from the sexual harassment scandal.
Newsflash: Germany’s main stock index, the Dax, has hit a six-month low.
German Foreign Minister Sigmar Gabriel has said he’s ‘very concerned’ by Donald Trump’s move, and called on the EU to respond decisively.
Speaking to German media, Gabriel says he hopes Trump will reconsider the tariffs announced last night.
China has expressed “grave concern” over US plans to impose tariffs on steel and aluminium, with the move likely to hurt US allies as well as Chinese producers.
Donald Trump’s announcement that the US will impose tariffs of 25% on steel imports and 10% on imported aluminium next week sent stock markets around the world tumbling and could prompt other countries to take action.
The Chinese side expresses grave concern,” the ministry of commerce said.
The statement did not mention any retaliatory steps but encouraged Washington to solve disputes through negotiation. Chinese officials have previously said they would take “necessary measures” to defend national interests.
Australia: These tariffs don’t help anyone
Australia’s government is already scrambling to protect its manufacturers from the impact of new tariffs on steel and aluminium.
It is “urgently lobbying the Trump administration for an exemption” to the move, according to the AAP newswire.
Here’s more details:
Federal Trade Minister Steve Ciobo labelled the decision, which comes a week after Prime Minister Malcolm Turnbull raised the issue with the president in Washington DC, “disappointing”.
“The imposition of a tariff like this will do nothing other than distort trade and ultimately, we believe, will lead to a loss of jobs,” he told reporters in Sydney on Friday.
The government is concerned retaliatory measures by other major economies could trigger a slowdown in the global economy.
“That is in no one’s interest,” Mr Ciobo said.
History shows that trade wars aren’t good for stocks – and encourage nervous investors to pile into safe-haven government debt instead.
European steelmakers are being hit this morning, with ArcelorMittal’s shares down 2%.
Across the markets, the industrials sector has lost 1% while basic materials is down 0.9%.
FTSE 100 hits three-week low
Britain’s blue-chip share index has hit its lowest level since 12 February, as worries of a trade war sweep through the City.
The FTSE 100 shed 42 points, or over 0.5%, at the start of trading in London.
Mining companies are among the fallers, as investors calculate that slapping tariffs on steel and aluminium could hit demand for commodities.
Other European indices are also falling in early trading; Germany’s DAX has lost 1% and France’s CAC has shed 0.75% as traders worry about the implications of Trump’s move.
Mike van Dulken of Accendo Markets says:
The negative open follows a sharply lower close on Wall St that flowed into Asia overnight after President Trump sparked concerns of a protectionist trade war with China and the EU by announcing his intention to impose import tariffs on steel and aluminium.
Trump’s tariffs: What the experts say
Several experts have warned that Donald Trump’s decision to impose tariffs on steel and aluminium imports could trigger retaliatory action, and even a full-blown trade war:
Robert Carnell of ING
“The world stands on the brink of a trade war as Donald Trump announces severe tariffs on steel and aluminium… this is how recessions start.
“Trade is just about the only thing economists are agreed on – more is better.”
Adam Cole of Royal Bank of Canada
As had been foreshadowed yesterday, President Trump announced new tariffs on Steel (25%) and aluminium (10%) imports late yesterday.
Many of the US’s main trading partners have said they will respond with reciprocal action. Generally, restrictions on world trade would be less negative for relatively closed economies, like the US, and hence positive for USD. But the risk of a bilateral trade war with China makes the current situation different, given China’s large holdings of USTs.
Jasper Lawler of London Capital Group
Under the pretext of national security, Trump has announced tariffs on steel and aluminium imports. However, it still remains unclear whether this will be applied to imports from all countries or just some. Whilst one of Trump’s aims is to encourage China to reform its practises, the reality is that Canada and Brazil are bigger exporters to the US than China.
Whilst market eyes have been firmly on interest rate expectations and recent volatility, no one was preparing for a potential trade war. The broader market sold off as these tariffs are creating and uncertain environment trade wise and the market hates any interventionist policy from governments. Whilst US steelmakers and aluminium makers rallied hard following the announcement, the Dow closed 430 points lower, whilst the S&P 500 and the Nasdaq closed 1.6% and 1.7% respectively.
The agenda: Trump trade war fears spooks investors
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The markets are taking a hammering this morning after Donald Trump slapped tariffs on steel and aluminium.
The US president announced plans to impose tariffs of 25% on imported steel, and 10% on aluminium “for “a long period of time”.
In another example of his America First agenda, Trump told metal industry bosses that:
“You’re going to have protection for the first time in a long time.”
We don’t have full details of the plan yet. But the broad-brush announcement has triggered fears of retaliatory action from other countries, notably China.
A trade war could slow global trade, undermine globalisation, hurt economic growth and push up costs.
Wall Street reacted swiftly last night, sending the Dow Jones down 420 points. Asia has been hit too, and European markets are dropping in early trading (more on that shortly).
As my colleague Dominic Rushe reports:
The Nikkei index in Japan fell 2.4%, Hong Kong and South Korea were down 1.6%, and the ASX200 in Sydney was off 1% in early afternoon trading. Asian steelmakers bore the brunt. South Korea’s Posco fell 3% and Japan’s Nippon Steel 4%.
Michael McCarthy of CMC Markets in Sydney said it was a “sharp reminder of the initial negative reaction to the election of Mr Trump … An explanation may come, but the initial market interpretation of the move is rank populism. The lack of structure makes anticipating further measures and possible responses to retaliatory moves difficult to predict.”
Also coming up today
We find out how Britain’s building sector fared in February, when Markit releases its monthly construction PMI.
Traders will be watching the pound closely, as Theresa May gives a big speech on Brexit. The PM is expected to urge both sides of the Brexit debate to reunite for the good of the country….
There may be some disappointed faces in Edinburgh. Bank of England governor Mark Carney had been due to address the inaugural Scottish Economics Conference in person – but due to the snow, he’ll scrapped the trip and will speak by video link.
We also discover how Canada’s economy fared in the last three months of 2017.
- 9.30am GMT: UK construction PMI for February
- 10am GMT: Mark Carney speaks to the Inaugural Scottish Economics Conference.
- 1.30pm GMT: Canadian GDP
- 1.30pm: Theresa May’s Brexit speech
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