The immediate impact of President Trump’s tariffs on steel and aluminum won’t be that large, said European Central Bank President Mario Draghi. Their effect on foreign relations is another matter.
“If you put tariffs against what are your allies, one wonders who the enemies are,” Draghi said in a news conference Thursday after the ECB opted to leave in place a negative interest rate designed to boost lending. It will continue buying $30 billion in securities each month to bolster the region’s economy at least through September.
The U.S. Federal Reserve, which grew its own balance sheet to $4.5 trillion with a similar strategy, has begun allowing it to shrink as conditions improved in the world’s largest economy.
Now, however, some members of Congress and Wall Street money managers are concerned that such economic gains may be imperiled by Trump’s plan to impose tariffs of 25 percent on steel imports and 10 percent on aluminum imports.
The tariffs, which would cost a maximum of about $10 billion – a small number compared with the $20 trillion U.S. economy, might spark a much broader trade war, they note.
Already, U.S. allies in Canada and Europe have condemned the duties, with European Commission President Jean-Claude Juncker suggesting his alliance might retaliate with tariffs on U.S. products from blue jeans to bourbon.
Whether retaliation becomes a reality will be pivotal to determining the ultimate effect of the tariffs, Draghi said. Trump indicated Thursday that he was rethinking the across-the-board duties he proposed originally, noting the need to “show great flexibility” to the country’s genuine friends.
Looking forward to 3:30 P.M. meeting today at the White House. We have to protect & build our Steel and Aluminum Industries while at the same time showing great flexibility and cooperation toward those that are real friends and treat us fairly on both trade and the military.
— Donald J. Trump (@realDonaldTrump) March 8, 2018
Among the most important aspects of trading disputes, Draghi said, is what they mean for confidence.
“The effect on confidence is very difficult to assess,” he said, “but if it’s a negative effect on confidence, that’s going to be negative on both inflation and output.”
If the tariffs do spark a trade war, it could halt the economic momentum achieved through the GOP’s December tax cuts and Trump’s efforts to loosen regulations, the U.S. Chamber of Commerce has warned.
“These new tariffs would directly harm American manufacturers, provoke widespread retaliation from our trading partners, and leave virtually untouched the true problem of Chinese steel and aluminum overcapacity,” about which Trump has expressed concern, said Chamber CEO Thomas Donohue. “Alienating our strongest global allies amid high-stakes trade negotiations is not the path to long-term American leadership.”
