President Trump refutes “big bark, little bite” predictions; angers allies

Trade correspondent L.C. reports:

US trade policy announced over the past week has answered the key trade question of the past sixteen months of whether President Trump is “big-bark–little-bite” and would ultimately back off from acting on his protectionist trade policy preferences and his peculiar understanding of how the trading economy works: No.

Mexico, Canada, and the European Union will now join Japan and China on the receiving end of a 25% tariff on their steel exports to the US and a 10% tariff on aluminum.

Today’s Wall Street Journal reports that

“Top finance officials from the Group of Seven leading nations met in Canada, where the non-U.S. members issued a public rebuke of Washington’s no-longer-postponed steel and aluminum tariffs. Those six—the host Canada, along with France, Germany, Italy, Japan and the U.K.—adopted a formal statement Saturday expressing their ‘unanimous concern and disappointment.’

“The following day in China, Beijing said it wouldn’t abide by any agreement to buy more U.S. products without assurances that the U.S. wouldn’t go ahead with plans to hit it with tariffs on $50 billion on Chinese imports.”

Global recovery in jeopardy?

The prospect of a trade war with the US comes at a particularly inopportune time for the world economy, given the “unmistakable slowdown in economic momentum in Europe and elsewhere,” the Journal notes. “The tariffs ‘reduce business confidence,’ which makes it more difficult for companies to make plans and execute on them,” says Deutsche Bank’s head of fixed-income trading.

The fact that the US measures implemented this week hit allies more than military rival China has spurred many in Congress and the private sector to criticize the President’s trade actions and promote the alternative of working together with Japan, the EU, and others to force Beijing to deal with its trade abuses and overcapacity problem.

Typical was the comment by House Ways & Means Chairman Kevin Brady (R-TX) who warned, “These tariffs are hitting the wrong target…. Mexico, Canada, and Europe are not the problem – China is.” Senate Finance Committee ranking Democrat Ron Wyden (D-OR) similarly said, “These tariffs, on the very allies we need to pressure China, make no sense.” And Sen. Bob Corker (R-TN) stressed the same point: “We should be working with our friends and allies to target those actually responsible for tipping markets in their favor.” The House Speaker and Senate Majority Leader chimed in with similar comments.

Interest in legislation to constrain the President’s unilateral trade authority became a little louder on Capitol Hill this week. On June 1st Senator Pat Toomey (R-PA) endorsed Senator Mike Lee’s (R-UT) Global Trade Accountability Act and said he will be promoting it. Sen. Corker, warning that “Imposing… tariffs on our most important trading partners… represents an abuse of authority,” reported that he is “working with like-minded Republican senators on ways to push back on the President using authorities in ways never intended and that are damaging to our country and our allies,” challenging Democrats to join them.

Undeterred, President Trump also seems serious about halting the inflow of foreign vehicles – claiming authority to do so under US trade law Section 232 for national defense. If the 232 process leads to auto trade restrictions, these would hit only close US allies: Japan, South Korea, the EU, Canada, Mexico, all of whom have also been targets of the Section 232 actions on steel and aluminum imports. Reportedly his goal is to halt all imports of German luxury cars.

They say that virtue starts at home. Among the cars that the President owns are an electric blue 1997 Lamborghini Diablo, a Rolls Royce Phantom, a Mercedes-Benz Maybach S 600, a Ferrari, a Rolls-Royce 1950’s Silver Cloud, and a 2005 Mercedes-Benz SLR McLaren.

NAFTA overhaul on life support

This week’s developments also appear likely to kill NAFTA overhaul for now.

Canadian Foreign Minister Chrystia Freeland said that Canadian retaliatory tariffs, taking effect July 1st after a 15-day consultation period with the private sector, will hit about $13 billion of US exports. They will target a wide range of consumer, agricultural, and metals products. The products were chosen because they could be purchased readily from non-US suppliers. She called the response “the strongest trade action Canada has taken in the post-war era.”

Prime Minister Justin Trudeau gave a speech calling the tariffs imposed on national security grounds an affront to Canadian soldiers who died fighting next to American troops, citing the “beaches of Normandy” and battles since. The US Defense Department’s own assessments consider Canada’s capabilities to be part of the US “national technology and industrial base”.

Up until the last minute, Ottawa was hoping to avert the tariffs and settle the NAFTA uncertainty by forging a “skinny NAFTA” centered about recent agreement on auto domestic content rules-of-origin along with some Canadian concessions on dairy market access. Trudeau had thought a conclusion was so close that he offered to come to Washington this week. “There was,” he said, “the broad lines of a decent win-win-win deal on the table.”

Mexico also announced retaliatory tariffs on US flat steel and many agricultural products including meats, fruits, and cheese. These imports were chosen in part, Mexico said, to have an effect and influence voters in the districts of “important” legislators.

The EU immediately filed a formal WTO complaint against the tariffs. It released a long list of US targets for retaliation and said that 25% tariffs would be imposed beginning June 20th on steel, aluminum, consumer, and agricultural products. Further, tariffs up to 50% will be imposed on a second list should the US 232 tariffs still be in effect in March 2021.

In an action separate from the US-China negotiations, Beijing cut tariffs on 1,449 imports effective May 31st, covering a wide range of consumer products. It also announced the lifting of some investment restrictions. The reductions varied, but some were quite large. The step was assumed to be part of the government’s drive to stimulate domestic demand and move production toward more high-tech sectors while pleasing trading partners and showing that it is liberalizing its economy.

Click here to go to the previous Founders Broadsheet post (“Congress, business, allies protest Administration’s security rationale for tariffs on auto imports”)