Goldman Warns Of “Further Disruptive Developments” From Trump Tariffs

If the market did not send the message that Trump’s move could be destabilizing…

Then perhaps Goldman Sachs’ latest report will convince everyone as they warn investors to expect further disruptive developments from Trump’s steel and aluminum tariffs…

Via Goldman Sachs,

BOTTOM LINE: President Trump looks likely to announce tariffs on steel and aluminum imports next week, on national security grounds. This is likely to escalate trade tensions, particularly as it looks likely to apply to a broad group of countries including to some allies of the US. We expect further disruptive trade developments over the coming months, including stalled NAFTA negotiations and potential restrictions on Chinese trade and investment.


1. Steel and aluminum tariffs seem very likely. While no decision has been formally announced, reportsindicate that the President announced during a meeting with industry representatives that he intends to sign an order next week to impose tariffs of 25% on steel imports and 10% on aluminum imports. This is similar to the 24% and 7.7% tariffs, respectively, that were included as the first of three options in the recommendations from the Commerce Department in its report to the President. Under that option, these tariffs would apply to steel and aluminum imports from all countries (rather than applying higher tariffs to a select group of countries). We note that the details do not appear to have been finalized so while action seems likely, many aspects of the decision could change over the next week.

2. The tariffs, if finalized, would be the most substantial trade restriction the Administration has announced to date. The steel and aluminum decisions come following recent “safeguard” restrictions on imports of solar panels and washing machines. While these decisions are not surprising—we highlighted them in our 2018 political outlook two months ago—they nevertheless confirm, in our view, that the White House has finally begun to shift to a more restrictive stance on trade policy. We note that unlike routine antidumping and countervailing duty cases or less common safeguard cases, the Section 232 authority the President will apparently use is rarely used and more controversial, as it does not rely on any economic argument and instead imposes trade restrictions on national security grounds. This could lead to other trading partners taking similar actions and could ultimately weaken the international trade conventions, like WTO rules, more generally.

3. The potential announcement of steel tariffs could alleviate political pressure on the White House to pursue other trade restrictions in the near-term, but they also suggest to us a rising probability of trade-restrictive outcomes to other pending issues. The two most important remaining trade-related decisions awaiting the Administration are the ongoing NAFTA negotiations—talks are currently underway in Mexico City—and pending Section 301 investigation into China’s practices regarding intellectual property and technology transfer. On the former, we believe the most likely outcome in the near-term is the announcement of a few small agreements on technical trade issues, but we continue to expect negotiations to stall on major issues like rules of origin and government procurement. There is a good chance that this could eventually lead the President to announce he intends to withdraw from NAFTA, but such an announcement does not appear likely in the near term, in our view. By contrast, we expect that the Administration will ultimately announce restrictions on investment by Chinese companies in the US, and possibly broader trade restrictions, in response to its ongoing Section 301 investigation. The deadline for that decision is not until August however, and it is not clear when an announcement in this area will be made.

And reactions have already hit as EU’s Jean-Claude Juncker’s threatened

We strongly regret this step, which appears to represent a blatant intervention to protect U.S. domestic industry and not to be based on any national security justification.

Protectionism cannot be the answer to our common problem in the steel sector. Instead of providing a solution, this move can only aggravate matters.

We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk.

The European Union will react firmly and commensurately to defend our interests. The Commission will bring forward in the next few days a proposal for WTO-compatible countermeasures against the U.S. to rebalance the situation.”

This won’t end well…