Will Trump Really Start a Broad Trade War?

in #news7 years ago

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When Donald Trump’s trade advisers complain about China dumping certain products, such as steel and aluminum, in other countries at below-market prices, they have a point. In the past fifteen years, Chinese production of steel and aluminum has skyrocketed, creating excess capacity in world markets, and Chinese firms have been widely accused of pricing below cost to clear their inventory. U.S. producers have struggled to compete with cheap imports. Many plants have closed down, and thousands of workers have lost their jobs.
The Trump Administration isn’t the only Western government to be concerned about the issue. Last year, the European Union slapped tariffs of up to 28.5 per cent on certain types of steel pipes and tubes made in China after finding that they were being exported at artificially low prices. “This is just one example of the Commission using the EU trade policy toolbox to tackle problems related to the dumping of steel,” the European Commission explained in a public statement. “The EU currently has an unprecedented number of trade defence measures in place targeting unfair imports of steel products, with a total of 43 anti-dumping and anti-subsidy measures, 20 of which are on products originating from China.”
Previous U.S. governments have also taken actions to counteract alleged Chinese dumping. In March, 2016, the Obama Administration imposed tariffs of more than two hundred per cent on imports of cold-rolled steel from seven countries, including China. Two months later, the Commerce Department raised the duties on Chinese corrosion-resistant steel to four hundred and fifty per cent.
What is different about the tariffs that Trump heralded at a White House meeting on Thursday is their breadth, and the aggressive manner in which the President is promoting them. Rather than targeting particular products, the tariffs would apply to all of them: twenty-five per cent on steel, ten per cent on aluminum. And instead of going after particular offenders, such as China, Trump seems to be threatening action against any nation that runs trade surpluses with the United States. “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,” he tweeted on Friday morning. “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!”
Trump’s off-the-cuff announcement sent the stock market down more than four hundred points on Thursday, and the Dow fell again on Friday. Foreign governments, some of which may well have been more sympathetic if the anti-dumping measures had been targeted more narrowly, also reacted with alarm. The E.U. announced that it would consider retaliatory measures. “The root cause of problems in these two sectors is global overcapacity caused by non-market based production,” Cecilia Malmström, the E.U.’s commissioner for trade, said. “This can only be addressed at the source and by working with the key countries involved. This go-it-alone action by the US will not help.”
Trump’s shotgun approach ignores these subtleties. It also glosses over the fact that China isn’t the biggest exporter of steel products to the United States. According to the research firm Wood Mackenzie, it is only tenth on the list, supplying just 2.4 per cent of U.S. steel imports. The biggest suppliers are Canada (16.7 per cent), Brazil (13.2 per cent), and South Korea (9.7 per cent), so two of our closest allies would be among the biggest losers.
The case of Canada illustrates the absurdities of Trump’s proposal. Over the past fourteen months, there have been trade tensions in many areas between Washington and Ottawa, but the dumping of Canadian steel products hasn’t been one of the issues. Rather, Canadian steel producers, like their U.S. counterparts, have been complaining about Chinese firms dumping products in the domestic market. Sensitive to these complaints, the Canadian government has long imposed protective duties on some Chinese exports, such as hot-rolled steel plate. On Thursday, the Canadian International Trade Tribunal indicated that these duties would remain in place. On this issue, at least, the United States and Canada should have been able to find common ground. Instead, Canada, like the E.U., is threatening to retaliate against Trump’s plan.
The key question now is whether Trump meant what he said, or knew what it implied. Evidently, there is a battle royale going on inside the Administration. On one side are the protectionists, led by Wilbur Ross, the Commerce Secretary, and Peter Navarro, an economic adviser to Trump. On the other side are the free traders, led by Gary Cohn, the head of the National Economic Council, and Steven Mnuchin, the Treasury Secretary.

According to a report in the Washington Post, Cohn and Mnuchin, as recently as Thursday morning, thought that a decision on imposing broad tariffs had been postponed. But Trump, with his eye on a forthcoming special election in western Pennsylvania, part of his geographic base, pulled a fast one and made the announcement. NBC News reported on Friday that his decision “was born out of anger at other simmering issues,” including his anger at Jeff Sessions and the decision by John Kelly, the White House chief of staff, to strip Trump’s son-in-law, Jared Kushner, of his interim security clearance. Trump became “unglued,” according to one official.
Whether that’s true or not, the trade hawks were delighted. On Friday morning, Ross told CNBC that broad tariffs were necessary because “conventional trade methods don’t solve the problem of systemic global overcapacity and global dumping.” Despite Trump’s public statement, however, the precise details of the new policy haven’t been announced. Will Captain Chaos reverse himself, as he did on immigration and also appears to have done on gun control? Tune in next week to find out.

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Nice article. What are your thoughts re: how the proposed measures might affect the American domestic economy, specifically with respect to job creation?