On Friday, US President Donald Trump announced a 25 per cent tariff on imported steel as well as a 10 per cent tariff on aluminium.
US trade adviser Peter Navarro confirmed yesterday there would be no country-wide exemptions to the tariffs, despite efforts by Australian Prime Minister Malcolm Turnbull and trade minister Steven Ciobo to secure an exemption for local manufacturers.
The move to impose tariffs by Mr Trump, which he heralded on Twitter by declaring "trade wars are good and easy to win", was widely denounced by economists around the world.
While the tariffs will benefit US manufacturers by making their foreign competitors' products more expensive, prices of US goods that use aluminium and steel will increase.
Saxo Bank chief economist Steen Jakobsen said that if the tariffs are enacted by the Trump administration as planned this week, the likelihood of a US recession will "rocket" to 70 per cent.
"Tariffs will increase prices for US consumers – effectively it’s a tax on consumption," he said.
"In my 30 plus years of trading and economics I have never seen more incorrect assumptions and premises than the ones presented by the US administration on trade," Jakobsen said.
Insight Investment portfolio manager Steve Waddington said the follow-on from Trump's tariff announcement will be a key market driver as other markets consider retaliatory action and trade wars.
European commission president Jean-Claude Juncker has already indicated that US imports such as Harley-Davidson motorbikes, Levi’s jeans and Kentucky bourbon whiskey could be targeted.
Mr Trump responded on Twitter, suggesting the US would further retaliate by applying "a Tax on [European] Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!"
However, UNSW Business School economics fellow Tim Harcourt (and former Austrade chief economist) said Australia could actually benefit from a trade war between the US and other major economic powers in the short term.
"If Trump makes the US an erratic and chaotic trade partner, Australia will be seen by China, South Korea, India and ASEAN as safe, reliable and on side in the Asia Pacific, particularly given the withdrawal of the USA by the Trump administration of [sic] the Trans Pacific Partnership (TPP)," Mr Harcourt said.
"And given that the US is mainly a source of foreign investment, it is trade that matters for us in North East Asia and that’s where Australia must maintain its solid reputation as a reliable supplier and customer," he said.
But in the end there are no winners in a trade war, Mr Harcourt said.
"Ultimately, we are all losers in a global trade war and that will only hurt the most vulnerable in all societies," he said.
