Tue, 17 Sep 2019

Friendly Fire: In Trade Fights, Trump Targets US Allies, Too

Voice of America
12 Sep 2019, 07:05 GMT+10

President Donald Trump has risked turmoil in the financial markets and damage to the U.S. economy in waging his trade war with China, America's top strategic rival.

But Trump hasn't exactly gone easy on America's friends, either. From Europe to Japan, the president has stirred up under-the-radar trade disputes that potentially could erupt within weeks or months with damaging consequences.

The administration is seeking, for example, to tax up to $25 billion in European Union imports in a rift over the EU's subsidies to the aircraft giant Airbus. It's also threatening to impose tariffs to punish France for a digital services tax that targets U.S. internet giants Google, Amazon and Facebook.

And come November, Trump could take his aggressive policies into uncharted territory by imposing tariffs on foreign autos and auto parts. This move would risk igniting a damaging conflict with Japan and the EU as well as with lawmakers on Capitol Hill.

The president's rough tactics have already shaken markets and paralyzed businesses that are struggling to decide where to expand or invest at a time when the rules of global commerce can be upended with one presidential tweet. Their uncertainty has contributed to a slowdown in global trade and growth.

"He doesn't seem to be deterred," said William Reinsch, a former U.S. trade official who is an analyst at the Center for Strategic and International Studies. "He seems to argue that these things are good and have a positive effect for America."

U.S. trade deficit

On trade, Trump is governing as he said he would. He casts the gaping U.S. trade deficit - $628 billion last year - as indisputable proof that America is being ripped off by its trading partners and that the free-trade deals his predecessors negotiated are rigged against U.S. companies. As a candidate, Trump pledged to forge more U.S.-friendly deals and to deploy tariffs to bend other countries to his will.

Mainstream economists take a decidedly different view of America's trade deficit. They say it reflects a fundamental reality that won't yield to changes in trade policy: Americans consume more than they produce. And imports fill the gap.

Among Trump's numerous trade fights, his standoff with China has drawn by far the most attention. And for good reason: His administration is waging the biggest trade war since the 1930s against the world's second-largest economy in a fight over Beijing's aggressive push to supplant America's technological dominance. Trump has imposed tariffs on $360 billion in Chinese imports and is preparing to tax the remaining $160 billion in goods that have so far been spared.

EU trade

Yet Beijing is hardly the only U.S. trading partner to draw Trump's fury. He has asserted that the EU's trade policies are even worse than China's and has threatened to use tariffs against the 28-country trade bloc, which has long been a vital U.S. ally.

"Sadly, in many cases it is our allies that took the greatest advantage of this country," Trump said at a campaign rally Monday. "Now you have a president who understands I am not supposed to be the president of the world. I'm supposed to be president of the United States."

Trump's Office of the U.S. Trade Representative has drawn up lists of $25 billion in EU imports - including aircraft, gouda cheese, waffles and olives - that the U.S. could hit with tariffs in retaliation for the bloc's support of Airbus.

Last year, the World Trade Organization ruled that the EU had indeed illegally subsidized Airbus. An arbitrator will decide how much compensation the United States is entitled to but could produce a figure that falls well short of what the Trump administration wants.

Imported autos

A much bigger hammer could drop this fall.

Trump last year ordered the Commerce Department to investigate whether imported autos and auto parts posed a threat to America's national security - a designation that would allow Trump to impose tariffs under a rarely used provision of American trade law. Commerce Secretary Wilbur Ross duly decided that foreign cars did imperil the United States. (The administration last year invoked the same justification to tax imported steel and aluminum.)

But the administration in May decided to postpone any action on autos for six months until mid-November.

Tariffs on auto imports would mark a drastic escalation of trade hostilities. The United States last year imported $192 billion worth of passenger cars and light trucks and an additional $159 billion in auto parts. Virtually no one outside the White House supports auto tariffs, which would disrupt manufacturing supply chains, raise prices for American consumers, and open a diplomatic rift with Europe and Japan.

If Trump proceeds with the taxes, he would likely face pushback in Congress. Lawmakers are already considering legislation to scale back his nearly unlimited authority to impose tariffs on national security grounds.

The president is using the looming tariffs to try to pry concessions from Europe and Japan. Last month, the EU agreed to import $270 million worth of U.S. beef annually. Trump credited his tariff threat.

"The EU has tremendous barriers to us, but we just broke the first barrier," he said then. "Maybe we broke it because of the fact that if I don't get what we want, I put on auto tariffs."

Likewise, Japan hopes to reach an agreement that would exempt it from Trump's steel and aluminum tariffs and from the threat of auto tariffs. In exchange, Tokyo would grant America's farmers greater access to the Japanese market.

But Reinsch, noting that Trump has a history of slamming countries with sanctions even after they've agreed to his terms, said he thought Tokyo would insist that any agreement be "signed in blood."

Growing uncertainty

Pressured by the steel and aluminum tariffs, for instance, Mexico agreed to join Trump's U.S.-Mexico-Canada Agreement, a revamping of the North American Free Trade Agreement that Trump had condemned as a job-killing disaster.

But just as trade relations between the neighbors appeared to be returning to normal, Trump surprised even his own advisers by threatening to tax all Mexican imports in a totally separate dispute (later resolved) over immigration.

Economists say growing uncertainty from Trump's confrontational trade moves is weakening American manufacturing, which contracted last month for the first time in three years, according to the Institute for Supply Management. Forecasters are downgrading their estimates of global growth, and financial markets appear sensitive to any perceptible rise in trade hostilities.

Philip Levy, chief economist at the freight company Flexport who was an adviser in President George W. Bush's administration, wonders if Trump will rethink his stated belief that trade wars are "good and easy to win." Maybe, Levy suggested, "With your fingers a little singed, you resolve not to touch the hot stove again."

Would Trump still be willing, for instance, to make good on his threat to abandon NAFTA entirely if Congress doesn't approve the new version his team negotiated?

Daniel Ujczo, a trade attorney with Dickinson Wright in Ohio, said "there is a low likelihood that President Trump actually withdraws from NAFTA" - and risks throwing $1.4 trillion in annual U.S. trade with Canada and Mexico into chaos.

Still, Ujczo suggested, Trump might go through the motions of doing so and start a six-month procedural clock to a pullout in order to intensify pressure on Congress.

Then again, Trump still enjoys almost unwavering support from his base among rank-and-file Republican voters. His supporters, Levy said, "like it when you fight and not when you act meek."

The result, Levy concluded, is that Trump is "much more likely to double-down than reverse course."

Reinsch agreed: "Until he sees political consequences, you're not going to see a change in strategy."

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