Donald Trump's trade war could lead to 'next recession'

United States President Donald Trump. Photo / AP

Australian's could wind up paying more for everything from cars and washing machines to electronics and clothing if US President Donald Trump's tariff threat erupts into a full-blown global trade war.

Trump sent global markets tumbling late last week with his announcement of a 25 per cent tariff on steel and 10 per cent tariff on aluminium to protect US producers, sparking threats of retaliatory tariffs on US products from the likes of the European Union, China, Canada, Japan and Mexico.

Australia exports an estimated A$274 million ($294.3m) worth of steel and A$276m of aluminium to the US, which imports more than 36 million tonnes of steel and five million tonnes of aluminium a year.

Frantic lobbying by the Australian government for exemptions appears to have failed, with senior Trump advisers on Sunday ruling out country exclusions when the tariffs are signed into law later this week.

"We are on the losing side of almost all trade deals," Trump tweeted on Monday. "Our friends and enemies have taken advantage of the US for many years. Our Steel and Aluminum (sic) industries are dead. Sorry, it's time for a change! MAKE AMERICA GREAT AGAIN!"

We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it’s time for a change! MAKE AMERICA GREAT AGAIN!

— Donald J. Trump (@realDonaldTrump) March 5, 2018

If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!

— Donald J. Trump (@realDonaldTrump) March 3, 2018

The United States has an $800 Billion Dollar Yearly Trade Deficit because of our “very stupid” trade deals and policies. Our jobs and wealth are being given to other countries that have taken advantage of us for years. They laugh at what fools our leaders have been. No more!

— Donald J. Trump (@realDonaldTrump) March 3, 2018

Earlier, Trump dismissed a threat by the European Union to impose retaliatory tariffs on US products including Harley-Davidson motorcycles, bourbon and Levi's jeans, saying the US would simply apply a tariff on European cars.

Commerce Secretary Wilbur Ross, meanwhile, called the US$3 billion ($4.1b) in affected goods a "pretty trivial" amount. Peter Navarro, director of the White House National Trade Council, has argued the 10 per cent aluminium tariff would add about one cent to a sixpack of beer and US$45 to a car.

"This whole idea that there's a big downstream effect — it's just part of the fake news that's going to be put out to oppose these tariffs," Navarro told Fox News last week. "A penny for a sixpack of beer — that's worth it to put Americans back to work in two industries that we need."

The Wall Street Journal pointed out in an editorial that steel makers employ about 140,000 people in the US, while steel-using industries employ 6.5 million.

In a note on Monday, Saxo Bank chief economist Steen Jakobsen described Navarro as the "single biggest risk to growth this cycle", warning the probability of a US recession over the next 12 months had soared to 70 per cent.

We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!

— Donald J. Trump (@realDonaldTrump) March 2, 2018

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

— Donald J. Trump (@realDonaldTrump) March 2, 2018

"In my 30-plus years of trading and economics I have never seen more incorrect assumptions and premises than the ones presented by the US administration on trade," Jakobsen said.

"Tariffs will increase prices for US consumers — effectively it's a tax on consumption. Something like 40 per cent of all goods sold at Walmart are China or Asia produced."

AMP Capital chief economist Shane Oliver said it was too early to predict the impact on Australian consumers, but the worst-case scenario was a full-blown trade war resulting in higher prices, a shrinking global economy and massive job losses.

"If we go down that path it will mean higher prices for imported consumer goods — cars, washing machines, electronics, clothing — but it really depends on how other countries respond and how far President Trump goes with his protectionist policies," he said.

"The last 30-odd years we've been reducing tariffs as a result of domestic policies and free-trade agreements, and that's been a boon for Australian consumers, greater access to goods from around the world at lower prices. So the worst-case scenario is losing that."

Oliver said that we were a "long, long way from that". He pointed out that the US did impose steel tariffs of 8-30 per cent in 2002 "yet there wasn't much impact from that", although a review did find that the "costs outweighed [the] benefits".

He added that the effect of increased prices for US-manufactured products — imported beer, for example — would likely be negligible. "It could [be passed on] but I think it will be lost in the wash," he said. "One-cent is a very small increase, it's questionable whether the Australian importer would be able to pass it on."