President Donald Trump’s tariffs on steel and aluminum imports, which roiled the stock market less than three weeks ago, now look like a much smaller deal after big new exemptions were granted on Thursday, just before they were set to take effect.
Yet dramatically shrinking metal tariffs were an afterthought on Thursday, as Trump made China the central front in his trade war and fear of retaliation against U.S. multinationals sent the stock market tumbling anew. The Dow Jones industrial average, S&P 500 index and Nasdaq composite tumbled well over 2% Thursday on Trump’s confrontational trade policy. The major averages sold off into the close on the stock market today, with the S&P 500 losing 2.1%.
China is showing maximum restraint for now. Overnight, Beijing said it would impose 25% tariffs on just $3 billion worth of U.S. goods, including pork, fruit, wine, steel pipe and recycled aluminum. That compares to Trump’s proposed tariffs on Chinese robotics, aerospace, biopharma and other goods that could amount to about $15 billion — 25% on roughly $60 billion worth of imports. Even Trump’s tariffs look modest in comparison to the $375 billion U.S. goods trade deficit with China and the $60 billion in tariffs that were floated.
A day after the stock market tumble, investors initially exhibited relief Friday that the near-term consequences may be limited, but the major averages turned mixed. Dow Jones components Boeing (BA) closed up 0.4%, while Caterpillar (CAT) fell 1.8%. Both fell more than 5% on Thursday.
China did not lay out any measures that would negatively affect Boeing and Caterpillar, but they could be at risk if Beijing decides to step up its retaliatory measures.
China’s U.S. ambassador told Bloomberg that Beijing could scale back Treasury purchases in response.
‘First Of Many’ U.S.-China Trade Actions
Investor relief over China’s measured response may be limited because Trump’s tariffs to punish Beijing for intellectual property theft likely mark the beginning of a fractious era for China-U.S. economic and geopolitical relations, which can’t help but pose significant risks for U.S. multinationals.
Trump said Thursday that the tariffs were just the “first of many” actions to reduce the U.S.-China deficit. China’s U.S. ambassador said that his country is “not afraid” to fight a trade war.
The Trump administration is targeting products that are key to Beijing’s Made in China 2025 initiative aimed at achieving global technology leadership. Tariffs are expected to go hand-in-hand with investment restrictions that blunt China’s ability to acquire American technology. China, for its part, is saying that U.S. accusations of IP theft are without merit.
The unstated rationale of Trump’s actions are pretty clear: The U.S. wants to maintain technological — and military — leadership over China, and that goal has to take precedence over economic cooperation when the two come in conflict. At the announcement of the tariffs, Trump’s plan got an endorsement from Marillyn Hewson, CEO of Lockheed Martin (LMT). Lockheed’s F-35 uses stealth technology that lets it evade detection. Shares of Lockheed rose 3% on Friday.
The Trump administration appears to have made a sudden realization that launching a trade war with global trading partners over steel and aluminum would hamper Washington’s efforts to contain the growing threat posed by China.
Steel Tariff Exemptions Expand
The 25% steel and 10% aluminum tariffs were set to take effect on Friday, but the Trump administration clarified late Thursday that countries representing more than half of U.S. steel imports would receive exemptions through May 1. Exempted countries include European Union members, Canada, Mexico, South Korea, Brazil, Australia and Argentina. After May 1, Trump could decide to permanently exempt those nations based on the status of talks.
Steel stocks fell hard on Thursday after U.S. Trade Representative Robert Lighthizer telegraphed the change in policy. On Thursday, shares of U.S. Steel (X) sank 11% to levels last seen before Trump ramped up his steel tariff talk in mid-February. Steel Dynamics (STLD) fell 7.5%, Nucor (NUE) 6.5% and AK Steel (AKS) 8.7%. Steel stocks extended losses Friday.
The Obama administration has been a target of some criticism for an inadequate response to IP theft. Yet it did have a plan for maintaining a sphere of influence in East Asia and Southeast Asia, expanding markets for U.S. multinationals and providing stronger IP protections: the controversial Trans Pacific Partnership. Dropping out of that pact was among the first acts of Trump’s presidency, but Treasury Secretary Steven Mnuchin has said in recent weeks that the U.S. could seek to rejoin the pact.
Trump, by contrast, has been focused on bringing more U.S. intellectual property back home, through corporate tax cuts. But U.S. multinationals can’t hope to serve global markets only from American shores. China, meanwhile, is laser-focused on deepening economic integration with economies throughout Asia through its 21st Century Silk Road initiative. The more the U.S. distances itself from trading partners, the easier it will be for China to emerge unscathed from a trade war.
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