trade Trump

Goldman: This Is ‘Unlikely To Stop At Steel’

U.S. trade policy is "on a troubling path."

With Gary Cohn having bid Donald Trump adieu (or with Donald Trump having bid Gary Cohn adieu, whichever way you prefer to look at it), the world will now hold its breath and hope that someone, although it’s unclear who, will step in and convince the President that his proposed tariffs are a slippery slope.

As usual, it’s unclear how much he truly understands about this issue. Unfortunately, this is one of those cases where his support base knows even less than he does about something and worse still, their opinion on the issue is understandably biased because, in some cases, they’ve been adversely affected by globalization. Of course Trump doesn’t give a shit about their plight and wouldn’t piss on them if they were on fire (although he might hire a Russian hooker to do it so he could watch). But he does give a shit about being able to claim that he fulfilled his “promise” of restoring long-dead American industries. Never mind the fact that by virtue of being dead, they cannot be “restored.”

The main risk here is not the steel and aluminum tariffs themselves (although that’s a problem too), but rather the potential for a domino effect that sends the world marching down the road to an all-out trade war.


On Tuesday, Goldman’s Jeff Currie and Damien Courvalin were out with a close look at the effect of the tariffs on the steel and aluminum markets and now, Jan Hatzius and co. are out with their take on what all of this likely means for the economy.

They begin by reminding you that while the steel tariffs are not surprising and, historically speaking, not unusual, U.S. trade policy “is on a troubling path.”

“This action looks much broader than similar actions in the past and trade protections might be less unsettling for markets if they were seen as an isolated event,” Goldman writes before explaining why the process here was so troubling. To wit:

Sec. 232 of the Trade Expansion Act of 1962 allows the president to impose trade restrictions in the interest of national security, but the law has not been used to impose restrictions in more than 30 years and has been rarely used since it was enacted. This process was used, we believe, because imposing tariffs on national security grounds increases the odds they will take effect. Unlike most other trade protections like antidumping or countervailing duties or safeguard tariffs, the national security-related decision does not require a review and approval by the US International Trade Commission. While tariffs of this level would normally be prohibited under WTO rules, it is quite possible that the WTO dispute settlement could decide in favor of the US in light of the national security exception allowed under WTO Article 21. If trading partners are unable to win relief through the traditional WTO dispute settlement process—this could take more than a year in any case—they are likely to retaliate outside of established mechanisms, weakening the institution in the process. Any decisions by other countries to invoke national security in defense of their own trade protections would weaken it further.

The bank goes on to note what everyone else has said, which is that it isn’t entirely clear how this is worth it considering “the steel and aluminum sectors account for relatively small shares of economy-wide imports, employment, and industrial production, suggesting limited direct macro effects.” Further, Goldman says that in the event there are no exemptions, you should “expect a significant increase in US steel prices” although the effect on core PCE inflation would likely be “modest because the majority of metals is used for investment in equipment and structures, government spending, or exports and because metal-consuming firms (i.e., manufacturers) are likely to absorb some of the price increase through lower margins.” Here’s the math on the PCE estimate:


Of course those are just the direct effects. The second-order effects that would materialize in the event of retaliatory measures by trading partners and (former) allies are likely to be more worrisome. For reference, Goldman reminds you that “the response by the EU to prior US trade protections—the 2002 steel tariffs and an even more important dispute regarding export subsidies in 2004 were the most important—have tended to focus on three categories of goods.” Those categories are:

  1. The subject of protections (so, steel);
  2. Consumer products (especially luxury goods);
  3. Agricultural products (grains, meats);

Although to be fair, Trump has some experience with his “meat” being subject to steep taxation when he misbehaves – just ask Stormy Daniels.

Anyway, the real problem is that Trump isn’t likely to stop at the steel and aluminum tariffs. After all, this most recent episode comes on the heels of the residential washing machine/solar equipment ordeal and on Tuesday evening, just after the Cohn news hit, reports surfaced that that the U.S. is considering imposing broad tariffs on Chinese imports as a result of the U.S. Trade Representative’s 301 investigation into China IP practices. Here’s what Goldman thinks might be next:

  1. Other product-specific cases are possible. In addition to the usual antidumping and countervailing duties the US and other countries often apply on narrow categories of imports, additional one-off disputes are possible, if not likely.
  2. NAFTA renegotiations are likely to stall. There is little chance, in our view, that NAFTA negotiations will conclude successfully this year, as the approaching Mexican presidential election (July 1) and US midterm election (November 6) are likely to make an agreement difficult before then. While it is unclear whether the proposed steel and aluminum tariffs substantially worsen the NAFTA outlook, they seem unlikely to help.
  3. An increasing focus on US-China trade. Over the last year, trade policy discussions have been more focused on Canada and Mexico, as a result of NAFTA negotiations and even the fact that they are greater exporters of steel to the US than most other trading partners. However, we do expect this to change, particularly once the US releases its determination in the Section 301 investigation regarding intellectual property and technology transfer. This seems likely well ahead of the August deadline.

Obviously, there is almost no chance Trump understands all of the above. And to the extent Peter Navarro understands it (which is certainly debatable – just any economist whose name isn’t “Peter Navarro”), he looks at it through his own homemade beer goggles.

But hey, at least Trump is “thinking” about it:

And look, you can be sure he’ll replace Cohn with someone sensible. After all, Trump only hires “the best people”…



18 comments on “Goldman: This Is ‘Unlikely To Stop At Steel’

  1. Just read that Ryan and Republican lawmakers can/will limit if not nip Trump’s trade war bullshit in the bud.

    They better get to work fast, cuz they’re gonna be voted out into the minority in half a year – and consider that most stupid democrats in congress are reportedly really keen on these tariffs and more.

  2. I agree with most of the analysis put forward by Heisenberg. But on the trade issue, the mantra seems like an arsenal of multinational company lobbyists (and their Investment Banks) trying to protect their foreign subsidized supply chain. I fully understand the profit motive, but numbers over the past 50 years do not lie. $12T current account deficit accumulated; $15T Public Treasury National Debt sold into the market, 55,000 manufacturing companies shuttered. If the US government were a business, it would be bankrupt because it has eaten the seed corn on which its future existence relies, and given IOUs to the rest of the world. Do the analysis, don’t just repeat something in support of their trading book when their primary motive is just to maintain an artificially inflated stock price valuation being levitated by an asinine Federal Reserve, ECB and BOJ monetary policy and a and an equally insane tax cut that allows them to buy-back their own shares so they can continue to shrink their way to prosperity.

    • this is the key point: “Unfortunately, this is one of those cases where his support base knows even less than he does about something and worse still, their opinion on the issue is understandably biased because, in some cases, they’ve been adversely affected by globalization. Of course Trump doesn’t give a shit about their plight and wouldn’t piss on them if they were on fire.”

      Trump doesn’t give a shit about these people. And these industries are dead. Period. They aren’t coming back. It doesn’t matter what Trump does or anyone else says. America is not going to be able to turn back the clock on globalization and reinvigorate these industries. It simply is not going to happen. And even if it did, it wouldn’t matter because they are a tiny part of the economy.

      the sooner everyone accepts that, the better off everyone will be.

      • Anonymous

        H, it seems Daniel Moore has a far better understanding of the tariff issue than you do at this time. Tariffs/import duties/import taxes/levy’s imposed by other countries on imported U.S. goods are rampant even as the WTO looks on. I doubt there will be any trade war but new and fairer agreements will result. I would submit that Trump has far more insight and real life experience on trade than you. JMO.

        • Donald Trump is a retarded monkey. JMO

          • additionally, it’s funny how you seem to think that Donald Trump and Peter Navarro have a better understanding of trade than every economist on the face of the planet and every analyst on Wall Street.

            you and Daniel Moore must be some well-educated motherfuckers, I’ll tell you what.

            at some point, you folks are going to have to admit the obvious: Donald Trump knows absolutely nothing about anything.

            of course if you’re a New Yorker, you already knew that.

        • “I doubt there will be any trade war but new and fairer agreements will result. ”

          Doubt that. He’s no negotiator. Instead he just walked away from TPP, period. Which opened the door to China to take his place, which it did (remember, China wasn’t even part of TPP until Trump left like a crybaby). Now China is leading TPP, the biggest trading block in the world, and it’s about to open talks with EU, the second biggest trading block in the world. US is on the outside looking in. Isolated and erecting tariffs as its market share and currency plunge… so tell me are you “tired of winning”?…lol

        • Anonymous

          H, I think economists are like most financial advisors. They have a follow the herd mentality. Most are afraid to step out of line and take a contrarian view even if they truly feel the opposite. When trade deals are renegotiated levelling the playing field for our Country, will you be so kind as to acknowledge a Trump positive? So that’s the thing.

    • Take any 1st year Econ class or read the equivalent….. Even those who disagree on economics almost universally agree that tariffs and trade wars are a LOSE-LOSE situation.

      Or instead, read a wee bit of History such as the Smoot Hawley tariffs.

      Someone here posted that Trump will be the next Hoover. Maybe so if he’s as ignorant about basic Eco and History as it seems.

      At the end of the day, trade is mutually beneficial. What the US does well, it exports and exchanges for what others do well. It’s an issue of enhanced efficiency, productivity and a WIN-WIN for both parties. The focus should be on improving what you can offer – like better software, jets, quality beef & ag, even weapons – and creating new value added products like AI, innovative healthcare equipment/pharma’s, even new weapons, whatever.

      Who the hell wants to work in a sweaty steel mill for $2/hour anymore? Even the Chinese are losing on steel to cheaper India and Indonesia – but do you see them resort to tariffs?…No instead they’ve moved up the food chain to stuff like assembling iPhones, and now moved up to creating their own best-in-world quantum computers and hack-proof quantum-encypted networks that are the envy of the world… and they’re getting higher pay accordingly than the steel grinders. Just like how the Japanese, Singaporeans and South Koreans moved up before them. It’s called “progress”… Dialing back to steel & protectionism is “regress” and a prescription for failure.

  3. If you hear trump speak about our computerized world or anything relating to computers – he has a sneer and grumble about it. He does not use a computer (someone else does any emails with his name on them) and he does not trust computers. He has same opinions of all contemporary industries including coal, steel, construction, etc.

    Just like I heard him say yesterday – when he was talking tough about anyone messing with our voting procedures – he said we need to use paper to vote, and he even repeated in a louder more definitive voice, PAPER. He made a reference to the machines, “those computers”, “unreliable”.

    He is a clueless ignorant dotard.

    • Computer information technology “made America great again” for a quarter-century beginning circa 1980 as US emerged as the clear industry leader. It spawned all kinds of bustling side industries as well as jobs in more traditional occupations like homebuilding & autos as the new industries flourished, not to mention the greatest stock market ever. Innovation and export is the path to prosperity and greatness, not protectionism and trade wars which are economically counterproductive and handicap a nation’s competitiveness against others that are more open & enlightened.

      Today there are promising new fields emerging like incredible new biotechnologies & super-aging, robotics, VR, quantum computing and AI etc. America is competitive in most and even has the lead in a couple of these, but that’s no assurance of future success, especially if it’s disadvantaged with high costs borne by tariffs, restrictions and uncompetitive trade practices whilst competing against others without such handicaps. Increasingly, people and capital and knowledge can and does freely move to where it’s treated best – and best isn’t behind a steel tariff curtain in isolation! You cannot unilaterally withdraw from globalization; instead you’ll just be left behind like an isolated dinosaur.

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