Global trade is at a "crossroad" after the imposition by the US of a 25 per cent tariff on steel and 10 per cent on aluminium, according to a new report by S&P Global Ratings.
US domestic steel and aluminium producers are likely to benefit from the tariffs, but US companies that use the raw materials will suffer, said S&P credit analyst David Tether.
"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," Mr Tether said.
Because only 2 per cent of the world's steel production and 6 per cent of aluminium is imported by the US, the tariffs are unlikely to end up flooding global markets, he said.
While the direct or first-round macroeconomic impact of these tariffs is likely to be negligible, the overall impact is less certain.
Much of it depends on the response of major US trading partners such as the EU, China and South Korea, Mr Tether said.
"Many US trading partners have already signaled 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," he said.
S&P economist Paul Gruenwald said that while a full-scale trade war is unlikely, such an outcome is "not assured".
"The initial U.S. tariffs could lead to an escalation of punitive, retaliatory tariffs by trading partners despite the known welfare damaging effects."
