The world sits on the brink of war – trade war, that is.
Throughout his 2016 presidential election campaign, Donald Trump repeatedly called for the United States to renegotiate its trade deals with the rest of the world – he famously referred to the North American Free Trade Agreement (NAFTA) as “the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country.”1
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Now President, Trump has begun to make good on his promises to renegotiate. Beginning on 1 June, the US imposed tariffs of 25% on steel and 10% on aluminium imports from the EU, Canada, and Mexico.
Perhaps unsurprisingly, the move has been met with widespread and vocal opposition from the countries affected by the new tariffs – many of which are close allies of the US. British Prime Minister Theresa May referred to the tariffs as “unjustified and deeply disappointing”; French President Emmanuel Macron called them “illegal”; and Canadian Prime Minister Justin Trudeau found them to be “totally unacceptable”.2
And it doesn’t end there – after all, you can’t have a ‘war’ without at least two sides taking part. The EU, Canada, and Mexico – accounting for US$23 billion worth of steel and aluminium imported into the US – have all set out plans for retaliatory tariffs on US goods. Canada alone plans to impose a 25% tariff on US$13 billion of goods it imports from the US, including steel, yoghurt, whiskey and coffee. Meanwhile the EU has responded with a 10 page list of tariffs on US goods, covering everything from Harley-Davidson motorcycles to Levis and bourbon.
And then there’s China. Next on the list to be hit by tariffs, the modern-day ‘workshop of the world’ has warned that “If the United States introduces trade sanctions including a tariff increase, all the economic and trade achievements negotiated by the two parties will not take effect.”3 The two countries are currently engaged in talks aimed at reducing China’s trade surplus with the US – another key Trump campaign pledge. Additionally, China has threatened its own retaliatory tariffs on US$50 billion worth of US goods across a wide range of products, including: small aircraft, orange juice, electric vehicles, and soybeans.4
Placing tariffs on steel and aluminium imports might have seemed a good idea on paper, but market manipulation almost invariably causes more problems than it solves. Just look at OPEC’s decision in November 2014 to maintain high levels of production and kill off the US shale sector – not only did this result in one of the longest downturns in the history of the industry, endangering the economies of OPEC members, but it failed in its core objective.
We often talk about how this industry can learn from other sectors, but it might be time for the oilfield to do the teaching.
- ‘Trump hammers America’s ‘worst trade deal’’ – http://money.cnn.com/2016/09/27/news/economy/donald-trump-nafta-hillary-clinton-debate/index.html
- ‘Theresa May tells Trump US tariffs are not justified’ – https://www.bbc.co.uk/news/business-44357123
- ‘China warns the US that any trade deals are off if Trump’s threatened tariffs go ahead’ – http://uk.businessinsider.com/ap-the-latest-china-warns-us-no-deal-if-tariffs-go-ahead-2018-6