Tag: World Trade Organization

Stock Market Falls as Trump threatens tariffs on $11 billion of EU goods

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U.S. stocks closed lower Tuesday, with the S&P 500 snapping its eight-day winning streak, on fears over escalation of trade tensions with the European Union and a weaker global outlook from the International Monetary Fund.

How did the benchmarks fare?

The Dow Jones Industrial Average DJIA, -0.72%  dropped 190.44 points, or 0.7%, to close at 26,150.58, while the S&P 500 index SPX, -0.61% fell 17.57 points. or 0.6%, to 2,878.20. The Nasdaq Composite Index COMP, -0.56% declined 44.61 points, or 0.6%, to 7,909.28.

What drove the market?

The office of the U.S. Trade Representative threatened to levy tariffs on many European goods late Monday. The threat is a retaliation against European companies’ subsidies for aircraft manufacturer Airbus SE EADSY, -1.82% If the U.S. follows through, the proposed tariffs would affect about $11 billion in imports to the U.S., including helicopters, bicycles, cheese and wine.

Lighthizer said the Trump administration would wait for World Trade Organization clearance to implement the duties. President Donald Trump Tuesday morning tweeted that the EU has taken advantage of the U.S., adding that it would “soon stop!”:

The U.S.-EU tensions comes with the administration reportedly close to resolving a yearlong spat with China, which has roiled markets amid fears the clash between the world’s largest economies could disrupt global economic growth.

The IMF lowered the outlook for global economic growth in 2019 to 3.3% from 3.5% projected in January, marking its third reduction of growth expectations in six months. The decline has been broadly felt, with all advanced economies, including the U.S., and most major emerging-market economies seeing deterioration in their outlook.

Meanwhile, data pointed to a tightening of the U.S. labor market. The number of job openings in the U.S. fell by 538,000 to 7.1 million on the last business day of February, marking the smallest number of job openings since March of 2018.

The National Federation of Independent Business’s small-business optimism index edged up 0.1 point to a seasonally adjusted 101.8, marking the third month in a row in a narrow range.

What were strategists saying?

“The tariff threat is probably what’s moving markets negatively,” Karen Cavanaugh, senior market strategist with Voya Investment Management, told MarketWatch, though she noted that tariffs being discussed are relatively small. “We’re in an information vacuum before earnings season, and right now any little thing could move markets until we get something substantial to sink our teeth into.”

“Sentiment in continental Europe is holding up well, considering the heightened tensions between Washington, D.C., and Brussels in relation to the threat of $11 billion worth of tariffs being imposed on European imports,” wrote David Madden, market analyst at CMC Markets, in a research note.

Which stocks were in focus?

Apple Inc. AAPL, -0.30%  surrendered early gains to fall 0.3%, bringing its nine-day win streak to a close as its effort to reclaim $1 trillion in market cap took a pause.

Shares of Wynn Resorts Ltd. WYNN, -3.86% dropped 3.9% after the company terminated talks to purchase Australia’s Crown Resorts.

Shares of Paris-listed Airbus SE AIR, -1.86%  were off 1.9% amid the U.S. tariff threat. U.S. listed shares EADSY, -1.82% also fell 1.8%.

Avaya Holdings Corp. AVYA, +4.17% shares gained 4.2% after Bloomberg reported that the communications software company is organizing a sales process for the company, following the receipt of unsolicited bids.

General Electric Co. GE, -2.85% shares slid 2.9% a day after J.P. Morgan analyst Stephen Tusa downgraded the stock.

Shares of American Airlines Group Inc. AAL, -1.68% fell 1.7% after the company cut its first quarter guidance.

How were other markets trading?

Markets in Asia closed on a mixed note, with Japan’s Nikkei 225 NIK, -0.61%adding 0.2%, Hong Kong’s Hang Seng Index HSI, -0.35% rising 0.3%, while the Shanghai Composite Index SHCOMP, -0.39% lost 0.2%. European stocks were lower, with the Stoxx Europe 600 SXXP, -0.47% down 0.5%.

In commodities markets, the price of oil CLK9, +0.19% retreated from five-month highs, while gold futures GCM9, -0.13% settled higher. The U.S. dollarDXY, +0.02% was mostly unchanged.

[MarketWatch]

Trump threatens to pull out of WTO ‘if they don’t shape up’

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President Trump on Thursday threatened to pull the U.S. out of the World Trade Organization (WTO) “if they don’t shape up,” a stance he has reportedly discussed in private but has denied publicly.

“If they don’t shape up, I would withdraw from the WTO,” the president told Bloomberg News in an interview.

Trump has long criticized the international body, saying in late June that the U.S. has been “treated very badly” by the group, describing it as an “unfair situation.”

At the time, the president insisted he was not considering pulling out of the WTO despite his frustrations, though Axios reported he had discussed with advisers his intentions to exit.

Leaving the WTO would upend the decades-old international trade system, which the U.S. helped establish, and roil markets around the globe.

The U.S. on Monday told the WTO that it plans to block the reappointment of one of the its four remaining judges, a move that would significantly hinder the organization’s ability to function.

If the U.S. successfully blocks the appointment of Judge Shree Baboo Chekitan Servansing, the WTO would only have three judges, the bare minimum to continue operations.

Two of the WTO judges’ terms expire in December of next year.

Trump and European Commission President Jean-Claude Juncker recently agreed to work towards a trade agreement that would involve reforming the WTO.

Multiple nations have filed complaints about Trump’s escalating tariffs with the WTO, including China. Trump is reportedly planning to impose $200 billion tariffs on Chinese imports as soon as next week, on top of the billions of dollars of tariffs he has already implemented.

[The Hill]

Trump imposes steel, aluminum tariffs on U.S. allies and Europe retaliates

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President Trump followed through on a threat to impose steep metal tariffs on U.S. allies Thursday, a long-awaited decision that analysts said moved the country closer to a trade war.

Commerce Secretary Wilbur Ross said that Canada, Mexico and the European Union would be subject to a 25% tariff on steel and a 10% tariff on aluminum beginning at midnight on Thursday. Brazil, Argentina and Australia agreed to limit steel exports to the U.S. to avoid tariffs, he said.

“The president’s overwhelming objective is to reduce our trade deficit,” Ross said.

The decision was the latest by the Trump administration to project a more protectionist stance amid ongoing trade negotiations with China and other countries. But it drew a sharp rebuke and promises of retaliation from longstanding allies.

“These tariffs are totally unacceptable,” Canadian Prime Minister Justin Trudeau said Thursday. “These tariffs are an affront to the long-standing security partnership between Canada and the United States.”

European trade officials have previously threatened to respond to Trump’s move with  duties on U.S.-made motorcycles, orange juice and bourbon, among other things. Jean-Claude Juncker, president of the European Commission, reiterated that position Thursday, saying Europe would impose duties on “a number of imports from the U.S.”

“This is protectionism, pure and simple,” he said.

The Mexican economic ministry said it would move to place tariffs on U.S.-made pork, flat steel, apples, cheese and other products.

Trump announced the tariff and aluminum tariffs in early March but offered temporary exemptions to the European Union, Canada, Mexico and a number of other allies. He extended those exemptions in late April, noting at the time it would be the “final” delay unless the countries agreed to other concessions.

“We are awaiting their reaction,” Ross said of the other countries. “We continue to remain quite willing, indeed eager, to continue discussions.”

The move promoted criticism from a number of Republicans on Capitol Hill, especially those with large agricultural industries.

“This is dumb,” said Sen. Ben Sasse, R-Neb. “Europe, Canada and Mexico are not China, and you don’t treat allies the same way you treat opponents.”

The decision comes days after the Trump administration announced $50 billion of new tariffs on Chinese imports, after officials had earlier said it was “putting the trade war on hold” with Beijing. Ross is set to travel to China this weekend to continue trade talks.

The Trump administration has relied on a 1962 law that allows countries to impose trade restrictions for national security purposes. The president has also justified the tariffs by pointing out “shuttered plants and mills” and the decades-long slide of manufacturing.

Several analysts said they are concerned the approach will have the opposite effect.

“The initial blows in the trade wars have finally landed,” said Eswar S. Prasad, former head of the International Monetary Fund’s China division and a professor at Cornell University. “It is now clear that Trump’s threats about trade sanctions are more than just bluster and are to be taken seriously.”

Prasad said the hard line approach might net Trump some short-term wins, but said “it could eventually result in the U.S. playing a diminished” role in global trade.

“He doesn’t have a strategy that’s going to lead to making American manufacturing great again,” said Robert Scott, a trade expert at the Economic Policy Institute. “There will continue to be a series of tit-for-tat battles.”

The U.S. imported 34.6 million metric tons of steel last year, a 15% increase from 2016, according to the U.S. Department of Commerce.

Canada was the top source of U.S. imported steel, accounting for 77%, according to the International Trade Administration. Mexican steel accounts for about 9% of U.S. imports.

The majority of that metal is used in construction, auto manufacturing and appliances.

The tariffs, as well as export controls agreed to by Brazil and others, will raise the price of steel and aluminum in the U.S., making domestic producers more competitive while adding to the price buyers of the metals must pay.

“We think that’s going to put the industry in real peril,” said Jerry Howard, president of the National Association of Home Builders. “We were very excited by the tax bill, but it turns out the tax bill giveth, and tariffs taketh away.”

Ann Wilson with the Motor & Equipment Manufacturers Association said its members are already paying tariffs on many of the components they import to make auto parts. Imposing additional barriers on the metals used to make those parts, she said, amounts to a “double tariff.”

“There is little doubt that the uncertainty and added costs the administration is creating will put U.S. investments and jobs at risk,” Wilson said.

Steel trade with Canada and Mexico is covered under the North American Free Trade Agreement, but the president is relying on a provision of U.S. law that allows him to claim the imports represent a threat to national security.

Many observers believe the announcement Thursday is the latest effort to prod stalled negotiations over rewriting NAFTA, which Trump repeatedly promised to do during his campaign for president.

“This really is an attempt to strengthen the negotiating power of the U.S. when it comes to renegotiating NAFTA,” said Ned Hill, who teaches economic development at Ohio State University. “This is just very public, bare-knuckle negotiating.”

[USA Today]

Reality

Trump promised he would go after countries who “cheated” in trade, but we do not have a major trade imbalance with our friends and allies.

Trump Threatens To Pull The U.S. Out Of The World Trade Organization

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Donald Trump on Sunday threatened to pull the United States out of the World Trade Organization (WTO) if his plan to tax imports of U.S. companies that move their operations abroad is foiled.

The Republican presidential nominee called the international trade body a “disaster” and ratcheted up his anti-trade criticism in calling for the punishment of U.S. firms that move overseas.

He also doubled down on his push to either renegotiate or withdraw the United States from all of their global agreements, including the North American Free Trade Agreement and the 12-nation Trans-Pacific Partnership.

“There will be a tax to be paid,” Trump told Chuck Todd in an interview on NBC’s “Meet the Press.”

Trump has vowed to impose tariffs — in the range of 15 percent to 35 percent — on companies like Indiana-based Carrier, which is moving its operations to Mexico.

“If they’re going to fire all their people, move their plant to Mexico, build air conditioners, and think they’re going to sell those air conditioners to the United States, there’s going to be a tax,” he said.

When Todd said the import-tariff plan wouldn’t pass muster at the WTO, Trump said that is “even better.”

“Then we’re going to renegotiate or we’re going to pull out,” he said.

“These trade deals are a disaster,” he said. “You know, the World Trade Organization is a disaster.”

When Todd told Trump that his plan would rattle the world economy much like Great Britain’s exit from the European Union has done, the New York businessman didn’t retreat from his hard-line trade stance.

“We’re going to do it. We’re going to do it,” Trump said.

Ed Gerwin, a trade policy analyst with the Progressive Policy Institute, said Trump’s latest trade ideas, “even by his standards, are insane.”

“They would bring about unprecedented global economic chaos, plunge the U.S. into recession and destroy millions of good jobs,” Gerwin said. “They’d make Brexit look like an English garden party.”

Gerwin called Trump’s trade proposals “not only wrongheaded, but they’d be a bureaucratic nightmare.”

“Withdrawing from the WTO would turn the U.S. into the economic equivalent of North Korea — walled off from the global economy,” Gerwin said.

He added that any move to exit the trade body would allow 160 countries to “immediately slap high tariffs and other trade barriers on U.S. exports, putting at risk the millions of good jobs that depend on U.S. exports.”

A WTO exit also runs counter to Trump’s plans to punish China for trade violations, a big focus of the trade arm of his campaign, Gerwin noted.

“Withdrawing from the WTO would also cut the U.S. off from the WTO dispute settlement process, which the U.S. has used with considerable success to get China to change unfair trade practices,” he said.

“All of this is deeply ironic, given that Trump also says he wants to be tougher on China trade and given that Trump also says that he’d eliminate foreign duties on products like U.S. beef the day he gets into office,” he added.

Trade experts argue that raising taxes on companies or countries that Trump deems as violators of trade rules would only hurt U.S. consumers by pushing up prices on imported goods.

The comments created an instant backlash from trade experts on Twitter.

Scott Lincicome, a trade attorney, wrote: “I know trade is complicated, boring, & politically toxic, but Trump’s WTO threat is the econ equivalent of his NATO comments, maybe worse.”

In another tweet he said: “And, of course, withdrawing the US from the WTO would very likely collapse the global economy, crippling US biz, workers, consumers (esp poor).”

(h/t The Hill)

Reality

As president, Trump could not be able to create these tariffs by himself. Article I, Section 8, Clause 1 of the United States Constitution, authorizes Congress to levy taxes. Most of Trump’s threatened tariffs would violate decades of binding trade deals negotiated by previous administrations and agreed to by previous Congresses. However rather than looking into the legality, we will instead explore Trumps question who should care if there is a trade war.

Trump proposed a 35% tariff on American companies who outsource manufacturing outside of the United States and then ship the products for sale back home. A tariff is a tax on an imported good that is passed on to consumers, both individual and businesses. That’s right, you the consumer will pay Trump’s 35% tax which means you will pay more for the products you buy every day.

For example Forbes estimates Trump’s tariff plan would cost American consumers an extra $6 billion dollars per year just on Apple iPhones alone.

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