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CWA # 21, 9 June 2018
Global Politics
Trump’s Tariff Strategy: Targetting Adversaries and Allies

  Harini Madhusudan

What is Trump’s Endgame? Why is he alienating the allies, when the US could benefit from their (G7) shared complaints against China’s trade behaviour? Or is he catering to the big corporations and lobby interests?

Project Associate, NIAS
 
In March 2018, the Trump administration announced new tariffs on Chinese goods, leading to a war of words on the nature and extent of tariffs. Despite analysts calling it as a bluff game and expected it to be resolved, the situation has escalated today. 
 
What is Trump’s Endgame? Why is he alienating the allies, when the US could benefit from their (G7) shared complaints against China’s trade behaviour? Or is he catering to the big corporations and lobby interests?
 
From China to G-7: What is Trump’s Endgame
In May 2018, an American delegation led by US Commerce Secretary Wilbur Ross had a discussion with the Vice Premier Liu He.. At the outset, Ross said that the two sides had discussed specific American export goods that China could purchase and wrapped up the talks with China’s ‘pledge’ to narrow its trade surplus. However, there was no joint statement.  The tensions of a “trade war” were temporarily eased after China promised to, ‘significantly increase’ its purchases of US energy, farm and other products. The US Treasury Secretary also announced that the US tariffs were suspended and the possibility of a trade war was put on hold. 
 
A White House statement read: "The United States will impose a 25 per cent tariff on USD 50 billion of goods imported from China containing industrially significant technology, including those related to the 'Made in China 2025' programme," barely ten days into the truce.  The Xinhua News Agency quoted a Chinese government statement: “if the US introduces trade sanctions including tariff increase, all the economic and trade achievements negotiated by the two parties will not take effect,” emphasising that the negotiating process should be ‘based on the premise’ of not fighting a trade war. 
 
US complaints against China remain the same; multibillion-dollar trade deficit and Chinese technology policy steal US Intellectual property. 
 
Concurrently, Trump has displeased America’s closest allies, the six other G7 members, by imposing 25% tariffs on their steel and 10% tariffs on aluminium. After the three-day meeting held in Canada, among the finance ministers of the G7 industrial countries ended, the Canadian finance minister Bill Morneau announced that the other members want Trump to hear their message of concern and disappointment over the US trade actions. European Union and Canada have already gone ahead and announced a series of American goods that they would likely impose retaliatory tariffs on. One thing is certain and that is, the fear is that the US action will damage business confidence around the world at a time when growth is slowing. Or will it? 
 
According to the Dutch bank ING, “exports of steel and aluminium to the US makeup just 0.3% of worldwide goods exports from the EU and represent a tiny 0.05% of the bloc’s GDP. The US has a trade in goods deficit with the EU of about $38bn, with about $78bn exported to Europe from the US, and $116bn going the other way. Should the tariffs be raised by 10% above proposed levels, the OECD has estimated it would reduce global trade by about 6%. But should the situation escalate, the consequences could be dire. Should the US and EU ramp up various tariffs, including on cars, the impact could knock 0.4% from US growth and 0.3% from the EU.”
 
Deciphering Trump’s Intentions
At this point, many assume that Trump continues to stress the tariffs in order to gain better trade terms out of China and the EU and additionally, to put pressure on Canada and Mexico to reform NAFTA. It continues to remain Trumps riskiest bets. His trade approach is entirely different from his predecessors who saw trade liberalisation as a better option.  In defence of the interests of US big industries, Trump is willing to cross US’ major trading partners and rivals alike and this is worrisome to not just the parties involved but for the world market on the whole. 
 
The Americans may not benefit from these trade actions. And this is first because these deals privilege investors over the workers as the US corporations and investors stand to gain the most from such trade restrictions. Secondly, there does not seem to be any plan in place for the potential retaliatory policies from the other countries. The new tariffs may help in making it easier for US companies to outsource to China without having to worry about intellectual property.  
 
On the surface, it seems as if President Donald Trump is over-playing his cards and it may not be about jobs at all. Even if everything goes in favour of US policies, these tariffs may never “lead to a net change in national employment levels once equilibrium is reached.” It is likely to cost more jobs than it may claim to create.
 
Interests of big corporations 
The industries’ intentions might be plain, and they have gained this benefit under other Presidents as well. Under the Obama administration, US TPP negotiations carry water for drug makers who demanded extraordinary trade protections for their intellectual property trying to feed their extraordinary high-tech medical businesses. These rules were left out of the TPP when it was adopted by 11 nations excluding the US. 
 
In the past, cigarette companies under the TPP negotiators have avoided labelling restrictions imposed by local lawmakers and created exceptions in public health, which was conveniently designed to prevent their abuse in that pact. This time around the US representatives are pushing to prevent countries from putting warning signs on the labels of food with high sugar and fat content. It is heavily backed by US corporations that do not want its consumers to be informed and do not want to alter their recipes or packaging for export. The countries however and Mexican officials in particular, see these processed foods that come with NAFTA as a public health concern.   
 
Industries that do not benefit
The steel and aluminium tariffs announced on the 29 May aimed at US allies, would directly affect specific industries in the US, some businesses include construction and architecture firms, car dealers, auto manufacturers, boat manufacturers, the beer industry, retailers and machinery manufacturers. The tariffs would put the American steel and aluminium industry to the fore, which is expensive compared to what was being imported.  In the long-run, these companies themselves may not benefit from this deal. And as they popularly say, “In a trade war, there are only losers,” the world may potentially be headed towards protectionism in a scale similar to the one before the great depression of the 1930’s. 
 
Trump does not seem worried- “trade wars are good” he tweeted when he sent shocks throughout the world markets and many calling it “the biggest policy blunder.” While his intentions are clear as crystal, his methods seem under-planned. Is Trump going to be the next Smoot and Hawley of America? Or will an alliance of all affected nations and WTO be able to handle this situation? 
 
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