Global Geopolitical Series: In July tariff retaliations would blow up into trade war

The probability of a large scale trade war between the United States and the rest of the world looks increasingly likely as actions continue to speak louder than optimism that all are part of President Trump’s negotiating strategy. While it is true that actions taken up so far by the Trump administration are indeed negotiating tactics to bring more countries to the negating table to draw new trade agreements, the strategy’s fallout is a bitter trade war with dissenters, which looks no longer a 7-sigma even but a reality.  

In addition to the 118 anti-dumping and countervailing trade actions against numerous countries, the Trump administration has slapped a hefty 25 percent tariffs on all Steel imports and 10 percent tariffs on all Aluminum imports to the United States. While several countries such as South Korea agreed to new trade agreements, one dissenter Mexico has retaliated by announcing tariffs on numerous U.S. imports ranging from Pork to Steel to Cheese.  This points to the fact that this strategy can be successful but is not without risk as two big dissenters; China and the European Union have also announced retaliation.

Why July?

Simply because a lot many actions are lined up for July. In July, China’s announced tariffs would go live on as many as 649 U.S. goods worth $50 billion, which was announced in response to U.S. decision of tariffs on $50 billion U.S. goods. On 6th July, Chinese tariffs on $34 billion worth of U.S. goods would go live, with the rest to get activated at a later date.

The European Union has also announced tariffs of its own on €6.4 billion U.S. goods, of which, €2.8 billion would go live from July 1st, with the rest to be announced at a later date.

We don’t expect the Trump administration to sit tight while these retaliatory tariffs go live. Further retaliation from the U.S. is likely. The only thing that might prevent President Trump for acting and waiting could be the Mid-term election. We also expect the Commerce Secretary Wilbur Ross to publish his national security findings on U.S. auto imports in July. The only thing that might prevent President Trump for acting and waiting could be the Mid-term election.