The 10% tariff on aluminum that President Trump just re-imposed on Canada will hurt downstream US aluminum manufacturers and benefit Chinese and Russian producers of raw aluminum. The president’s restrictions on Chinese spy technology, by contrast, are welcome.
The weekly trade report with L.C.
On August 6th, President Trump signed a “Proclamation on Adjusting Imports of Aluminum Into the US,” which re-imposed Section 232 10% tariffs on Canadian primary aluminum. Canada quickly announced, as predicted, that it will be retaliating dollar for dollar against US exports to Canada. In the past, Canada, like other countries targeted by Trump’s tariffs, have retaliated by especially targeting states where the president will be vulnerable in the forthcoming November election.
Among the points that opponents of the just-imposed aluminum tariffs make is a potentially explosive one: that because the US has the capacity to make only a small portion of the raw aluminum it uses, the main beneficiaries of a hike in the cost of imports from Canada will be Russia and China. US consumers and consuming industries will be put at a disadvantage, just as they were by the US tariffs slapped on Canadian softwood lumber, another material of which the US consumes much more than it produces and so is dependent on imports.
Ironically, the president announced his signing of the proclamation during a speech at a Whirlpool washing machine factory in Clyde, Ohio. Whirlpool’s key materials inputs are aluminum and steel. The company protested when the Section 232 metals tariffs were first imposed, complaining that they would jack up its costs. They did, and the price that consumers had to pay for washing machines and dryers increased by 12%. Each job added by the protectionist tariffs cost $817,000.
Protectionism-themed campaign foreshadowed
The press described the president’s Clyde speech as “campaign style,” centered about how he has fulfilled his promises on trade. He also suggested that a big trade-related announcement is in the works. It is not known what he was referring to. But the trade-orientation of the speech suggest that he will be making his protectionist trade policy a campaign issue. He declared:
For eight long years under Obama-Biden administration, American factory workers received nothing but broken promises and brazen sellouts and lost jobs. The last administration tied America up in one globalist debacle after another. They catered to the special interests while allowing foreign nations to siphon off our wealth, our dignity, our dreams, our money. The suffering of our workers was met with nothing but cruel betrayal and callous indifference….Joe Biden supported every single one of those horrible, disastrous sellouts.
Biden’s campaign has been highly defensive on trade, saying that a Biden presidency would not reverse Trump’s tariff wars immediately or seek quick conclusion of new trade agreements. Of the US-China Phase One deal, Biden separately told reporters it is “unenforceable” and “failing – badly.” It is, he said, “full of vague, weak, and recycled commitments from Beijing” and hasn’t stopped China’s harmful subsidies or intellectual property theft.
Trump’s comments on Biden and in defense of his trade record show that he will be running for reelection without any nuanced shifts in the protectionist ideology that underpinned his last campaign and his presidency’s first three years. Some had expected he might instead play up his successes in finalizing USMCA, US-China Phase One, US-Japan deals, and moving forward with the UK, Kenya, and India. But apparently he will instead continue to stress his tariff wars and his pull-back from the WTO and from past trade agreements as his main trade accomplishment.
Hurting own re-election chances?
That comes despite warnings that keeping trade policy tumultuous, alienating trading partners, and maintaining or adding tariffs will continue to harm the economy and thus his electoral chances.
A study released this week by the National Bureau of Economic Research found that while temporary trade barriers like anti-dumping and countervailing duties have a “statistically insignificant” impact on the industries they are aimed at protecting, they cause significant harm on jobs in downstream sectors – just what appeared to result from the Section 232 tariffs on metals and Section 201 tariffs on washing machines.
Another point many critics are making is that the tariff will raise the cost of producing vehicles in North America. Already, the automotive sector has had to shake up its operations to adjust to the new USMCA rules-of-origin and pandemic-induced disruption to manufacturing plants and to supply chains. This added burden will be a further blow to the competitiveness of the industry.
Discouraging future trade partnerships
The re-imposition of tariffs under circumstances that Canada and many in the US private sector consider inappropriate will make it harder to win cooperation on trade with other counties and cause those involved in trade talks with the US to be wary. The imposition of Section 232 tariffs against a free-trade agreement partner and close ally on the grounds that it poses a national security threat was seen as an alarming step even the first time around in 2018. The Wall Street Journal warned in an editorial opposing Trump’s tariffs that they are “telling America’s friends that his word on trade can’t be trusted.”
In his Ohio speech, the President was unpleasant and accusatory toward Canada, using language not traditionally used toward an ally though now common for him.
“Clean Network” idea popular
Meanwhile, with justification in this case, the Trump administration is ramping up its fight against Chinese technology that it sees as a threat to US national security. China uses its technology – hardware and software – to engage in espionage, sabotage, propaganda, and population manipulation. On August 5th, Secretary of State Mike Pompeo intensified the tech confrontation by issuing voluntary guidance for US companies to become part of a “Clean Network” – to keep their apps off Chinese Internet platforms and keep their own data away from Chinese cloud services. To do otherwise, he suggested, would make a company “complicit in Huawei’s human rights abuses or the Chinese Communist Party’s surveillance apparatus.”
The “Clean Network” idea is being increasingly promoted by the administration and has strong support on Capitol Hill. This was reflected in this week’s moves to further restrict the activities of Chinese social apps, with short-video app TikTok a key target. President Trump has ordered it to cease US operations unless it is acquired by a US company. Microsoft has been courting it, but other parties have been active as well.
On August 6th, the president released orders barring any US company from transacting with ByteDance-owned TikTok or Tencent-owned WeChat after 45 days, meaning they have to be bought out before then to continue operating in the US. The president charged that “The spread in the US of mobile applications developed and owned by [Chinese] companies continues to threaten the national security, foreign policy and economy of the US.” That’s because these social media apps allow information on US citizens and Chinese citizens in the US and elsewhere to be provided to the Chinese Communist Party. They could also be used to manipulate and propagandize groups of people. That’s something the CCP really can’t deny since its Cybersecurity, Intelligence, and Anti-terrorism laws require companies to cooperate with Beijing’s demands for data and information.
President’s TikTok fee not well received
The TikTok situation was complicated by President Trump’s remark in relation to a Microsoft acquisition — that “A very substantial portion of that price is going to have to come into the treasury of the US. The US should be reimbursed or paid because without the US they don’t have anything.”
The personal demand of a US president for a government payoff in a commercial transaction has no basis in US law and raises the threat of banana republic personalismo becoming the norm in the American republic. Further constitutionally threatening moves in this direction have come with President Trump’s revival of President Obama’s legally obnoxious “I have a pen and phone” end-runs around an uncooperative Congress with regard to coronavirus aid payments. As the Wall Street Journal explains, the president wishes to
redeploy up to $44 billion from the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund to finance extra jobless benefits by $300 a week (plus $100 a week if states choose to match it with previous relief money)….Mr. Trump is commandeering the power of the purse that the Constitution reserves for Congress…. Mr. Trump’s FEMA order is a bad legal precedent that a President Kamala Harris could cite if a GOP Congress blocked her agenda on, say, climate change.
President’s re-shoring denies role to allies
President Trump issued an Executive Order on August 6th aimed at encouraging the re-shoring of production of medical-related products. It seeks to increase the capacity for domestic production of the targeted products in part by directing federal agencies to source them domestically to the extent possible.
As the president explained in his speech at the Whirlpool factory, “As we’ve seen in this pandemic, the US must produce essential equipment, supplies, and pharmaceuticals for ourselves. We cannot rely on China and other nations across the globe that could one day deny us products in a time of need.”
The goal is clear: government agencies shall procure these products “using procedures to limit competition to only those Essential Medicines, Medical Countermeasures, and Critical Inputs that are produced in the US; and dividing procurement requirements among two or more manufacturers located in the US, as appropriate.” There are exemptions for cases where it is impossible or detrimental to shift to domestic sources, including where it would hike the cost by more than 25%. Still, even increases under 25% would mean the government, including the DOD (a major purchaser of medical supplies), would be paying significantly higher prices if the re-shoring goal of the executive order is reached.
So much for previous agreements…
Free trade agreement partners and government procurement agreement signatories will be angry. The president is unilaterally rescinding procurement benefits that other countries negotiated, often with trade-off sacrifices, in reaching these agreements. One can expect that some countries will protest or retaliate with similar actions. Some analysts also point out that by creating more discord with allies, the move will benefit China.
As with many Buy American initiatives, the domestic industry that might be thought to benefit is not necessarily enthusiastic. The PHARMA association said the EO “creates even more barriers to ongoing biopharmaceutical manufacturing and innovation,” given the importance of the global supply chain. Moreover, industry representatives complained that the order will disrupt their activities and force their attention elsewhere at a time when they are trying to cope with the medical needs of the pandemic. The PHARMA head added that the new order is “contradicted and undermined” by other medicine-oriented orders issued on July 24th that are aimed at cutting drug prices. These, he noted, were themselves a disincentive to domestic investment in the sector.
The president’s initiatives with aluminum tariff re-imposition and medical re-shoring, as so often with populist measures, will likely backfire on their proponent.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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