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Tariffs on steel, a further sign of global overcapacity

SPX News by Newsroom on 02:51 March 07, 2018 EST

Funny how war doldrums come and go in the US in an orderly fashion.

We were entertained for a few months with verbal exchanges between president Trump and Kim Jong-un, a.k.a rocket man, and just as the testosterone display dissipated we have a new war threat in the making, fortunately, just a trade one.

Steel tariffs appear the ground breaking concept to make America great again. This is on the notion that other countries tax US goods at their ports of entry hence putting US companies at a competitive disadvantage. Of all sectors Trump could have focused on he has put steel manufacturing at the epicentre of his plan to roll a wave of import taxes.

But, wait a minute, isn't his administration in the process of rolling a massive, huge, hyperbolic US wide infrustructure plan involving the refurbishment of main airports, building of new roads, government buildings, border walls, etc.

If demand for steel is about to explode as a consequence of such gigantic plans such taxes for foreign steel would be counter productive. Unless you are mainly interested in making US steel manufacturing company owners super rich overnight you would hope for competition to obtain a better price for the raw material while demand spikes.

The other, more likely, option is that the president knows full well the major infrastructure plan will not be as big, if any, as advertised and therefore the supply/demand ratio will remain broadly at current levels and so will be the real impact of those imposed tariffs aside the PR that comes with it.

In summary, just a further sign that overcapacity outstrips global demand in many sectors. With protectionist policies governments, not only in the US, will try to keep a selected set of their local industries afloat at the expense of the rest that will end up paying higher prices for obtaining the same goods and services.