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Trump pursues hardline trade policies, despite costs
WASHINGTON, July 12, 2018 (BSS/AFP) – Unleashing another barrage of
punitive trade tariffs on thousands more Chinese products, President Donald
Trump has shown he is willing to pursue hardline policies — no matter the
cost.
And as Trump’s attacks on Germany at the NATO summit this week
demonstrate, that aggressive strategy extends to allies as well as
traditional rivals and to security as well as trade.
Stock markets over the last few days were recovering due to the view
expressed by analysts, like JP Morgan and CFRA, that the initial salvos in
the trade war were simply a “negotiating tactic.”
But Tuesday’s announcement that the administration would proceed with 10
percent tariffs on another $200 billion in Chinese goods as soon as September
put an end to that more benign view, sending global markets tumbling on
Wednesday.
That move comes on top of 25 percent duties on $34 billion in annual
imports from China, with another $16 billion on the way, as well as steep
tariffs on steel and aluminum from around the world.
And Trump has threatened to hit another $200 billion in goods from China,
and put new taxes on auto imports, in a move largely aimed at Germany.
China, Mexico, Canada and the European Union have responded to each US
move with retaliation of their own. Oxford Economics analyst Adam Slater said
the total share of global trade facing high tariffs could rise to five
percent.
Economists warn this poses a serious risk to the world economy, as it will
depress investment and US growth and accelerate unemployment.
But with the economy growing by as much as four percent in the second
quarter, unemployment at the lowest in a generation, and corporate profits
soaring as a result of massive US tax cuts, Trump may feel comfortable
ignoring those fears.
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– Trump’s Afghanistan –
With midterm elections coming in November, in which Trump’s Republican
Party could lose seats in Congress, he may be more focused on the short-term,
playing to his political base.
Instead of careful diplomacy, Trump has been “doubling down” on abrasive
tactics, said foreign policy expert Heather Conley of the Center for
Strategic and International Studies.
And because he needs to show his supporters he is getting something out of
it, he will “just keep going and see who blinks first,” she told AFP.
While Trump has thrown some verbal head fakes that have alternately
horrified and comforted trading partners and US businesses, he has moved
consistently towards a tougher stance as other governments failed to succumb
to his threats.
“There is clearly a coherent world view behind this” policy, economist
Adam Posen told AFP. “It’s a coherent world view, if paranoiac.”
But Posen, who heads the Peterson Institute for International Economics
and formerly served on the Bank of England’s monetary policy board, warns
that the administration is taking on a multi-front war without any clear
means of producing a victory.
Trade wars are “even more costly for the aggressor than military
aggression usually is and the effects of an attack are even less predictable
and controllable than traditional war,” he warned.
“There is no scenario where inflicting economic pain on trading partners
leads to a good outcome.”
That disregard for the certainty of self-inflicted wounds could make this
confrontation Trump’s “economic Afghanistan — costly, open-ended, and
fruitless,” Posen wrote in a recent op-ed.
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– Geopolitical gambit –
Posen and others acknowledge that some of Trump’s points are valid: many
governments have long complained about China’s lax protections for technology
and even outright theft of intellectual property.
And Germany’s high trade surplus for years has been a sore point within
the EU and in transatlantic relations.
Trump also accused Germany of not bearing its fair share of the NATO
defense costs and of over reliance on Russia for its energy needs.
But Conley said, “there is no overarching strategy when it comes to what
the US is trying to do, how to shepherd resources and allies to go get it.”
“He has an immediate need to do something now, but no sense of what are
the cascading consequences.”
And his aggressive strategy may damage US diplomatic efforts. The White
House needs Beijing to pressure North Korea to denuclearize and would have
more leverage over China to change its policies if it joined forces with the
EU and others.
Instead, “Trump is willing to raise the ante until China capitulates,”
said Eswar Prasad, a professor of trade policy at Cornell University.
“With the Chinese government in no mood to cave in to US demands, it is
difficult to envision an exit path from an escalating trade war that could
end up inflicting some damage on both economies.”
BSS/AFP/HR/1015