Hold on for the ride as Trump’s trade wars begin
Ever since candidate Donald Trump became President Trump, much of the world has been holding its breath as to whether the uber-protectionist would make way for a more amenable leader in the White House. Just as it took a while until the deed of ditching the Iran deal was done, so too with trade — but Trump looks like he is about to deliver.
Last Friday, the president declared that the US would be imposing tariffs on $50 billion worth of Chinese goods, just two weeks after putting tariffs on steel and aluminum imports from the EU, Mexico and Canada. Trump had promised to protect almost 150,000 jobs in the American steel and aluminum industries, which, in the short term, he may just do — but it will have a knock-on effect on other industries as costs go up. It is a racing certainty that all parties will respond in kind. China has, for example, already slapped tariffs on soybeans and pork, with American farmers expecting to be hit hard. Steel will also be more expensive for US car manufacturers.
For sure, a degree of intent was declared early on, when Trump pulled out of the Trans-Pacific Partnership trade deal within days of setting up stall inside the Oval Office. He has railed against China’s record on theft of intellectual property rights, as he has also slammed it for currency manipulation in the past. Canada is in Trump’s sights for its highly protectionist position on dairy farming.
Yet now both the EU and China have had their notice served. Notably, allies and opponents are treated alike. The symbolic pinnacle of this fallout came at the end of the G7 summit in Canada, when Trump reneged on his promise to sign the final declaration, tearing into Justin Trudeau, the Canadian leader. Trump’s trade adviser, Peter Navarro, was blistering, promising that “there’s a special place in hell” for Trudeau (he later apologized for those comments). After insulting allies, Trump was soon dishing out compliments to North Korean leader Kim Jong Un — a historic US foe.
Does this mark the upending of an old world order? Is this a war Trump can win, or will it be losers all round? Of course, Trump oozes confidence, even tweeting that: “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore — we win big. It’s easy!”
The existing order is best outlined by Christine Lagarde, of the International Monetary Fund. She warned that “governments need to steer clear of protectionism in all its forms. History shows that import restrictions hurt everyone, especially poorer consumers.”
Learning from history helps to an extent, though the global economy is so much more interconnected than it was at the time of the trade wars of the 1930s. The Smoot-Hawley Tariff Act of 1930 raised US tariffs on more than 20,000 imported goods, kicking off retaliations that led to a 60 percent drop in US exports. It served to drastically exacerbate the Great Depression.
Are we headed for similar events? We are a long way from the horrific scenarios of the 1930s, but this does not mean that caution is not in order. Tariffs have, of course, been deployed since those days, and the last serious trade confrontation was between the US and Japan in the 1980s. So far, the focus is just on steel and aluminum, but perhaps the risk here is that these will escalate to be tougher and broader in scale unless agreements are reached in quick order.
Domestically, whilst it might satisfy Trump’s factory worker voter base, it alienates key Republican constituencies, not least many congressmen who have been fearless in their promotion of free trade. The first tariff announcement was quickly followed by the resignation of Trump’s economic adviser, Gary Cohn.
The president is fond of being seen to make deals, as well as calling the shots. He will want to have something in the bag by the mid-term elections in November.
The question is what Trump’s price is and what sort of deal he envisages? He knows China and other powers are scared of trade wars and most experts assume this is a tough negotiating ploy from Trump. The president is fond of being seen to make deals, as well as calling the shots. He will want to have something in the bag by the mid-term elections in November.
Does there come a point when some of America’s closest long-term allies no longer see the US under Trump as such? This is tough to imagine. The US is just too dominant, not least in the field of security, and expect Trump to go hard on NATO members who have not contributed their fair share. US allies will have to rub along with Trump, but retaliatory tariff action is guaranteed. They will also certainly turn for a ruling to the World Trade Organization, as they did when President George W. Bush attempted to impose steel tariffs back in 2002. Bush backed off, but will Trump?
Perhaps the best scenario is to keep this limited and restrict the fallout. Trade wars rarely have winners. It seems world powers will just have to live with the uncertainty and unpredictability that Trump seems to thrive on. Hold on for the ride.
- Chris Doyle is director of the London-based Council for Arab-British Understanding (CAABU). He has worked with the council since 1993 after graduating with a first class honors degree in Arabic and Islamic Studies at Exeter University. Twitter: @Doylech