US President Trump’s impending tariffs increase the risk of retaliatory action by affected countries but the short-term economic impact is likely to be minimal, says S&P Global Ratings.
In a report titled “Global Trade At A Crossroads: US Steel And Aluminum Tariffs Raise Risk Of Retaliatory Spiral”, credit analyst David Tesher says: “US domestic steel and aluminium producers are likely to benefit from the tariffs, while certain other corporate sectors would suffer from higher input costs.
“Posing a greater threat is the risk of retaliatory action by major US trade partners such as the European Union (EU) and China triggering a trade war, hurting American
exporters, global trade and global economic growth.
“We believe the tariffs will encourage US production of steel and aluminium, raise utilisation rates and keep domestic prices elevated over the next 2-3 years. Any gains could be temporary, though, if the US were to return to a less protectionist stance.
“As such, we could see positive rating actions in the next 12-24 months among US-based metals and mining downstream borrowers most exposed to steel and aluminum prices, particularly those in the ‘B’ ratings category and other speculative-grade companies.”
“Meanwhile, the aerospace, defence, capital goods and midstream energy
industries were likely to suffer from higher input costs.
“US steel imports represent just 2% of global production, while aluminium’s proportion is 6%. However, the tariff for aluminium is lower. Consequently, we do not see steel and aluminium production that would have otherwise been bound for the US flooding global markets.
“While the direct or first-round macroeconomic impact of these tariffs is likely to be negligible, the overall impact is less certain. It would depend on the response of other major US trading partners; namely, the EU, China and South Korea. Indeed, many US trading partners have already signalled their concern at the announcement and have stated that they are prepared to retaliate with their own tariffs on goods imported from the US.
“More important are the potential second-round effects on consumer and business confidence and spending, which would ultimately drag down GDP.”
S&P Global Ratings economist Paul Gruenwald added: “Although we don't expect a full-scale trade war, such an outcome is not assured. The initial US tariffs could lead to an escalation of punitive, retaliatory tariffs by trading partners despite the known welfare damaging effects.”