Trump signs order imposing 50% tariffs for steel, aluminum. Why economists are dismayed.

President Trump signed an executive order imposing 50% tariffs on imported steel and aluminum, doubling the previous rate of 25%, effective Wednesday. Economists, including Diane Swonk of KPMG and Sal Guatieri of BMO, have expressed concerns that this action could increase input costs, potentially leading to job losses in manufacturing and setting a precedent for higher tariffs on other sectors like motor vehicles and microchips. While the Coalition for a Prosperous America supports the move, arguing it protects domestic industries from subsidized foreign competition, the broader economic impact remains a concern.

Analysis

President Trump has signed an executive order doubling tariffs on imported steel and aluminum from 25% to 50%, effective Wednesday. This move has elicited significant concern from economists. Diane Swonk of KPMG U.S. highlighted a Federal Reserve study on the 2018-2019 steel tariffs, which found that increased input costs resulted in net job losses in overall manufacturing, outweighing gains in the steel industry; she anticipates the current, higher tariffs could have an even more detrimental effect. Sal Guatieri, a senior economist at BMO, expressed concern that these tariffs, which will lift the average U.S. tariff rate slightly to around 15%, could set a precedent for imposing higher duties on other sectors like motor vehicles, lumber, and microchips, which are reportedly under investigation. While the Coalition for a Prosperous America supports the measure as a defense for U.S. industries against subsidized foreign competition, the broader economic sentiment is pessimistic, reflecting concerns that such trade actions continue to disrupt the economy, as evidenced by business investment recently seeing its largest drop in six months. The strongly negative sentiment and potential for significant market impact underscore the risks associated with escalating trade protectionism.

Key Decisions for Investors

• Investors should scrutinize companies heavily reliant on steel and aluminum inputs, as the 50% tariff will likely elevate production costs and could negatively impact their profitability.
• Monitor for any signals of tariff expansion into other key sectors such as automotive, lumber, and microchips, as this could significantly broaden market volatility and negatively affect a wider range of investments.
• Consider the potential for increased input costs to exacerbate inflationary pressures or, conversely, for trade disputes to dampen overall economic activity and manufacturing employment, potentially warranting a more defensive portfolio posture.