Tough Talk on Tariffs

This month's Trade & Export Online article focuses on the announcements which are regularly filtering through regarding the latest escalation in protectionist rhetoric and action, including news of a US tariff on $50 billion dollars’ worth of Chinese goods - click here for more.

In a previous article, we provided context to the possibility of a trade war into which China, plus historic allies of the US were being drawn, as a result of tariff announcements impacting steel and aluminium.

Clearly, the temperature has risen since our initial article was published. While there are no firm details as yet, there are a number of conclusions that can be drawn at this early stage, specifically:

  1. There is an increased risk of 'tit-for-tat' responses. China, the EU, Canada and Mexico have all threatened retaliation in recent announcements.
  2. The impacts are likely to be varied and capricious. US companies can be hurt significantly, particularly if they have a global supply chain.  It is not just the exporters to the US who are punished.  Conversely, US domestic companies in some markets may get temporary shelter where overseas competitors are handicapped.  Retaliation, however, is likely to target totemic US brands and specific constituencies for political impact.
  3. Other things being equal, this is likely to lead to higher prices in related sectors, driven by higher costs of supplies.
  4. On a slightly more positive note, it doesn’t necessarily mean a full rerun of the 1930s! A complex subject and protectionism was a feature. However,  there were significant challenges at that time around exchange rate policy (the Gold Standard), which drove events that are not present now.

This is still muscle flexing, not a full-scale trade war (yet!). Clearly, there is still a great deal left to play out, but each organisation and in particular, those directly involved in international trade, should begin to review the impact of tariffs.

The Trade & Export Online course library contains further information on the subject, with Unit 1 covering the fundamental theory behind the reasons for trade and Unit 35 providing more detail on tariff and non-tariff barriers for imports.

About the author

David Millett is a coach and trainer who works regularly for RWA. He has a long experience in trade issues with a background in banking, where he was Head Of Trade Product Management for the Royal Bank of Scotland, before becoming Head of Business Development for UK Export Finance’s short-term business. David is a Fellow of the Institute of Export and former Council Member for the International Chamber of Commerce UK and the British Exporters Association.

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