What's going on?
European steelmakers with significant American operations, like ArcelorMittal and Outokumpu, were among the top-performing stocks in Europe on Monday after the US government floated the idea of taxing steel imports.
What does this mean?
The US Department of Commerce recommended late on Friday that the president impose a hefty tariff of “at least” 24% on imported steel [tweet this] along with a smaller tariff on aluminum imports. A decision from President Trump is expected by mid-April.
US steelmakers would likely get a boost if such measures were enacted, as their overseas competition would face heavier costs to sell into America. However, several large foreign-headquartered steelmakers already have substantial operations in the US – and they too would therefore benefit from the proposed new rules.
Why should I care?
The bigger picture: Free trade is facing more barriers lately.
President Trump campaigned on a much more “protectionist” (i.e. less free trade) agenda than most recent presidential candidates. After his election, he (and Congress) promptly canned America’s proposed participation in the Trans-Pacific Partnership, a deal that would have represented the largest free-trade pact signed in over 20 years. Meanwhile, Britain is negotiating its exit from the European Union: although this isn’t necessarily anti-free trade, it does pose a big risk to the smooth continuation of trade between Britain and the world’s largest trading bloc. Ever-greater free trade has been a pillar of the world economy since the 1980s – but the momentum appears to be shifting.
For markets: Trade wars pose a risk to companies’ profits.
While imposing tariffs might be good for certain domestic US industries, retaliatory measures are likely to be imposed by other countries, which would hurt other American firms’ ability to sell their products overseas. There would be winners and losers in such a scenario, but companies in general favor free trade, as it allows them to manufacture their products in the most efficient countries while selling globally.