Trump's direction not good
WHEN Donald Trump was running for the US presidency, his comments on trade issues - most notably his criticism of the long-standing North American Free Trade Agreement - and the newly negotiated Trans Pacific partnership - raised concerns a Trump administration would adopt a much more protectionist approach to world trade than its predecessors.
Since coming to office President Trump has withdrawn the US from the TPP and initiated the renegotiation of NAFTA: both steps that were clearly signalled in his campaign rhetoric and neither prompted much in the way of financial market reaction.
However, his recent announcement that tariffs would be imposed on imports of steel and aluminium (with Australia later winning an exemption, along with Canada and Mexico) spooked financial markets with share prices falling on the news.
The economic impact of themeasures - even if implemented in full - is likely to be small.
Any boost to US steel and aluminium producers and to employment on those industries is likely to have a minimal effect on the overall US economy.
US consumers of steel and aluminium will face higher prices for these key raw materials, but the adverse impact isn't that big a deal.
What is more concerning is the overall trend of US trade policy.
Many commentators took the view that on trade President Trump's bark would prove worse than his bite, but that complacency has surely been shaken.
Make no mistake: rising US protectionism is bad news for the US and world economies.
In a full-blown trade war between the US and its major trading partners - China and the EU - there would be no winners and the consequences for the world economy would be dire.
While cooler heads are still likely to prevail, the fact that the US President and his key advisers either do not understand any of this or do not care is scary.
As an open economy with export volumes accounting for around a fifth of our GDP, a deterioration in global trade and a weaker global economy is a frightening prospect and Australia's exemption from US steel and aluminium tariffs wouldn't be much help.