Goldman Sachs Thinks Tariff Move Spells End of NAFTA

President Donald Trump’s decision to impose tariffs on foreign steel and aluminum likely precedes an exit from NAFTA, according to Goldman Sachs.

The bank’s chief economist noted that while a formal decision has yet to be announced, a 25 percent tax on steel and a 10 percent tax on aluminum would be the most substantial trade restrictions to date.

“Unlike routine antidumping and countervailing duty cases or less common safeguard cases, the Section 232 authority the President will apparently use is rarely used and more controversial,” wrote Jan Hatzius, chief economist at Goldman Sachs. “There is a good chance that this could eventually lead the President to announce he intends to withdraw from NAFTA, but such an announcement does not appear likely in the near term.”

He added the tariff proposal “does not rely on any economic argument and instead imposes trade restrictions on national security grounds.”

usdcad Canadian dollar graph, March 2, 2018

The economist was referring to the Commerce Department’s use of Section 232 of the 1962 Trade Expansion Act in making its recommendation for tariffs. Department leaders argued that the dumping of cheap steel and aluminum from China and other countries puts U.S. competitors out of business, risking national security.

According to the U.S. Department of Commerce, Canada and Brazil – two key trading allies – were the top sources of foreign steel to the U.S. as of September 2017. China, frequently criticized politically for dumping cheap steel on trade partners, is not one of the top 10 importers of steel to the U.S.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza