Inact

How economically damaging will Trump’s steel tariffs be?

Ben Chu
Economics Editor
Thursday 31 May 2018 16:52
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The European exemption is over.

The Trump administration announced on Thursday said that the reprieve for EU steel imports to the US from Trump’s swingeing tariffs announced in March will expire on 1 June.

In response, the EU has said it will impose retaliatory tariffs on US imports, such as orange juice and Levi’s jeans.

The long-feared trade war appears to have begun in earnest.

But what will be the economic impact on the EU, and the UK in particular?

How many jobs rely on the UK steel industry?

Around 32,000 people are estimated to work in the steel industry. That’s only around 0.1 per cent of the UK’s entire 32 million strong workforce.

Yet they are geographically concentrated. Around half of those jobs are located in Wales, Yorkshire and the Humber, making those regions particularly vulnerable.

When the Redcar steel works in Teesside, which had been the second largest blast furnace in Europe, closed down in 2015, some 2,000 jobs were lost at a stroke.

The GMB union warned in March that “thousands” of UK steel jobs could be under threat from the Trump tariffs.

How much will these tariffs hurt the overall economy?

Steel production accounts for only £1.6bn of the UK’s gross value added, or less than 0.1 per cent of our total economic output.

Arithmetically, the economic impact of a major hit to the industry would not be disastrous, although when Redcar shut down it apparently contributed to a steep fall in total manufacturing output.

But a bigger economic danger lies in the distinct possibility that this trade war escalates and that other products and sectors are targeted. There is an expectation that the US will go after EU car imports next.

A general escalation could easily hit investment in the UK – both foreign and domestic – and that would likely harm our already dismal productivity growth.

Economists also point out that tariffs tend to be paid by consumers, rather than exporters.

What they mean by that is that those retaliatory EU tariffs on American whiskey, peanut butter etc will be passed on in the form of price rises for those items in UK shops.

This will put upward pressure on inflation and downward pressure on real wages and living standards.

What about Europe?

The biggest EU steel manufacturing employer is Germany, with some 85,000 workers.

Next, in terms of steel employment, comes Italy, then Romania, Poland and France and Spain.

The industries of all these countries will feel the pain if US tariffs crush their existing imports.

Whereas the UK exported $460m of steel to the US in 2017, Germany exported $1.8bn and Italy $725m, according to Commerce Department data.

The EU as a whole sent $6.5bn of steel to the US, around a fifth of the country’s imports.

But, as with the UK, the bigger economic threat to our European neighbours lies in a potential general breakdown in the post-war rules-based multilateral trading framework.

“The direct economic impact of 25 per cent tariffs being imposed EU exports of steel and aluminium to the US should be easily manageable given the modest size of the affected trade flows. However, the spectre of an escalation is likely to weigh on business sentiment and may derail the investment recovery,” said James Nixon of Oxford Economics.

The next largest steel exporter to the US after the EU in 2017 was Canada, with $1.2bn. Mexico’s exports were $565m. Both of those countries will also be hit with Trump’s steel levies from 1 June, underlining the global scale of this trade battle.

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