What's going on?
Hard to say that something like a global trade war isn’t erupting these days: on Friday, the US government removed its tariff (a.k.a. import tax) exemptions and started applying the duties to Canada and countries in Europe and Latin America.
What does this mean?
The US administration actually announced steel and aluminum tariffs about two months ago, but at that time it had only applied those to some countries (like China) and made a number of temporary exemptions for its allies and neighbors. The Trump administration says that it’s decided to go ahead and remove those exemptions as talks with allies about how to reduce the US trade deficit have not progressed sufficiently since March.
America’s allies have responded in turn – Canada will be charging tariffs of up to 25% on several of the nation’s imports from the US, and Europe seems to have similar retaliatory measures in mind.
Why should I care?
For markets: US steel stocks have been an obvious winner.
Since the tariffs were first announced in March, US steel stocks have been going strong – and they climbed another 2% through the end of last week. Shares of industrial companies that require a lot of metal to do business (like Boeing and Caterpillar) fell, as their costs of doing business are increasing.
For you personally: Time to start ditching your beer cans for glass bottles…
While it varies significantly from country to country, in general our economies are open to international trade – many things we consume everyday are manufactured in other countries (iPhone anybody?). With tariffs in play, however, the calculus of trade could change significantly. Businesses who need steel and aluminum for the goods they produce will want to avoid their bottom lines being hurt too much, and so they are likely to pass some or all of the costs on to consumers.