The Trump Effect: Trade Tariffs

History has proven that trade conflicts are rarely good for markets across the world. When President George W. Bush imposed steel tariffs of between 8-30% in 2002, the dollar took a dramatic hit for the following few years, until the World Trade Organisation (WTO) ruled against the tariffs following an appeal from the European Union.

And as the United States – the world’s largest economy – faces up to a potential heavyweight trade clash with the rest of the world, businesses this side of the pond will no doubt be wondering how the UK could be impacted by the fallout of a global trade war.

$0
worth of American goods the EU is prepared to impose tariffs on

Trade threats

Weeks of tit-for-tat threats have passed between the US and China recently, after President Trump announced plans to impose tariffs of 25% on imported steel and 10% on aluminium, for “national security reasons”. The penalties were originally aimed at China, in response to their policy of flooding the world with cheap metals, and temporarily excludes a list of countries, including the entirety of the European Union, until 1st June.

In mid-May, Trump announced that a trade war with China was on 'on hold' for now, though the differences between two nations remain and could therefore mean that this is just a brief de-escalation of tensions.

In the meantime, the EU is keen to seek “unconditional, permanent exemptions” from any potential tariffs, but it certainly hasn’t boosted its position after a ruling by the WTO determined that it had been providing illegal financial aid to Airbus, leading to threats of further retaliatory sanctions from the US.

As a result, the EU hasn’t delayed in publishing a list of hundreds of American products worth up to $7.8 billion that it could target if tariffs are imposed. The list is detailed over 10 pages and features a variety of items, including cigarettes, sailboats, ovens and motorcycles.

$0
worth of goods were exported from the UK in 2016

How will this impact the UK?

The good news for the UK is that its import-heavy economy – with $625 billion worth of imports compared to $404 billion of exports in 2016 – is more resilient to the impact of tariffs. If a deal is struck between the EU and the US, Britain will be relatively immune to direct ramifications of a continuing trade war involving China.

If, however, the two sides fail to reach an agreement, one industry that could take a big hit in the UK is steel. Unable to currently make an individual case and exploit the “special relationship” between Britain and the US, the government is limited to working with EU partners to consider the scope for exemptions. 7% of steel exports were sent across the Atlantic in 2017, of which the majority were of higher value and speciality forms. It is hoped that even if a deal cannot be reached, that customers would be more willing to absorb the cost of tariffs if these products aren’t easily substituted.

There is also every possibility that China could begin to favour countries elsewhere in the world for trading targets. This has been hinted in the hit Boeing’s share price took recently after speculation grew of China turning to rivals such as Airbus. Could this in fact be an opportunity for the UK?

SINOSCAN STAFF - CLICK TO GO TO OVERVIEW</strong

  • Jens, Engineer, SinoScan Denmark
    Jens, Engineer, SinoScan Denmark
  • Jane, QA and Documentation Dept. Manager, SinoScan China
    Jane, QA and Documentation Dept. Manager, SinoScan China
  • Mai-Brith, Logistics, SinoScan Denmark
    Mai-Brith, Logistics, SinoScan Denmark
  • Detlev, Engineer, SinoScan Germany
    Detlev, Engineer, SinoScan Germany
  • Gu Hao, Product Dept. Manager, SinoScan China
    Gu Hao, Product Dept. Manager, SinoScan China
  • Flemming, CFO, SinoScan Group
    Flemming, CFO, SinoScan Group
  • Nick, Engineer and Peter, General Manager, SinoScan UK
    Nick, Engineer and Peter, General Manager, SinoScan UK

How will this impact the rest of the world?

Even though nothing is set in stone just yet, it would appear that the world is already responding to the rise in tensions, something Roberto Azevêdo, the WTO’s director-general, describes as “the last thing the world economy needs”.

The comments came following the publishing of the WTO annual trade report, which outlined trade growth of 4.4% for this year (down from 4.7% in 2017) and 4% forecast in 2019.

What’s next?

With the UK effectively powerless to make individual bargains with the US, all eyes rest on the government’s cooperation with the EU. It is expected that mutual concerns regarding China will be a focus of discussions, in a bid to come to an agreement that will be handled within an international multilateral framework.

It’s been reported that the EU may be prepared to tolerate quotas on metal imports to the US to avert any potential for a trade war, similar to agreements that have been made with Brazil and South Korea.

In the meantime, the bloc is open to discussing trade and has stressed the recent deals struck with Canada, Japan, Singapore and Mexico, with the hope that this will bolster their position in the global market in the face of any measures put in place by the US.

If there is anything we can be certain of, it’s that President Trump is far from predictable. Both trade tariffs and agreements are anything but secure and the world’s eyes are on POTUS’s Twitter account as we await the President’s next Tweet...

Useful Read?

Useful Read?

Sign up for our newsletter and we will send you our latest blogs and case studies.

Recent Posts

SinoScan Group Posts

×

Delivery and Quality Metrics - Last 12 months

At the crux of the services of any off-shore supplier are timely deliveries, consistent quality and cost-efficiency.

We strongly believe that one of the fundamentals of a successful supply chain partnership is clarity for all parties involved. This is why we have decided to publish our delivery and quality performance track records on a monthly basis.

This graph shows our total performance over the past 12 months.

×