The method to Trump's seeming tariff madness

The method to Trump's seeming tariff madness
© Getty Images

Is it possible there’s some method behind President TrumpDonald John TrumpMost Americans break with Trump on Ukraine, but just 45 percent think he should be removed: poll Judge orders Democrats to give notice if they request Trump's NY tax returns Trump's doctor issues letter addressing 'speculation' about visit to Walter Reed MORE’s tariff madness? Consider the timeline:

Last Thursday, President Trump announced that his administration would impose a 10-percent import tariff on aluminum and 25-percent tariff on steel beginning "sometime next week."

Also on Thursday, U.S. Treasury Secretary Steven MnuchinSteven Terner MnuchinOn The Money: Supreme Court temporarily blocks House subpoena of Trump financial records | Trump touts 'cordial' meeting with Fed chief | Stopgap funding measure includes census money, military pay raise McConnell backs 'clean' stopgap spending bill through Dec. 20 The Hill's 12:30 Report — Presented by Johnson & Johnson — Trump floats testifying in impeachment hearing MORE, U.S. Trade Representative Robert LighthizerRobert (Bob) Emmet LighthizerPelosi sounds hopeful on new NAFTA deal despite tensions with White House On The Money: Economy adds 164K jobs in July | Trump signs two-year budget deal, but border showdown looms | US, EU strike deal on beef exports Chinese, US negotiators fine-tuning details of trade agreement: report MORE and National Economic Council Director Gary Cohn met with Xi Jimping’s top economic adviser Liu He at the White House to discuss reducing the United States' $375 billion trade deficit with China.

ADVERTISEMENT

A few days earlier, representatives from the U.S., Mexico and Canada met in Mexico City for round seven of the mutual effort to rewrite the North American Free Trade Agreement (NAFTA).

 

Though there has been progress, the negotiations are stuck on several key issues, such as the “rules of origin,” which determine how much of an automobile’s content must be produced locally. Trump wants the figure raised from the current 62.5-percent level to something over 80 percent.

The talks have also been roiled by the president’s insistence that Mexico pay for a border wall and President Pena Nieto’s refusal to do so. The week before he announced the steel and aluminum tariffs, the president had a testy conversation with his Mexican counterpart, which left him “frustrated and exasperated” and resulted in the cancellation of Pena Nieto’s proposed White House visit.

In short, reorganizing and strengthening our trade relations has been a lively activity in the Trump White House of late. Considering that the president announced the tariffs over the objections of numerous advisors, especially Gary Cohn, and that he took many of his own staff by surprise, it appears likely that Trump acted out of frustration with our growing trade imbalance and the slow pace of progress.

While crafting economic policy in a fit of pique is undesirable, Trump’s aggressive move may have strategic merit. Reining in our trade deficit was a key campaign promise. Over the past year, our trade imbalance actually grew 12 percent, to $566 billion.

In various tweets defending his announcement, the president noted that our deficit may be heading to $800 billion this year, leaving him “no choice” but to act.

The tariffs are meant to deflate that deficit, but also to signal that Trump intends to use America’s economic might to extract the kinds of concessions that his predecessors failed to demand.

Our NAFTA partners need the agreement more than we do; Trump wants a better deal. He also doubled down on earlier promises to hold China accountable for its manifest and prolonged cheating.

The timing of the announcement seems important and not unlike the missile strikes on Syria that Trump oversaw the night of his first meeting with China’s president Xi Jinping. What better way to impress upon Beijing that there was a new sheriff in town — one who would not tolerate, among other things, China’s continued undermining of sanctions against North Korea?

In the wake of that encounter, and with further evidence that the Trump White House was intent on bringing Pyongyang to the bargaining table, China has surprised many by agreeing to stepped-up sanctions on North Korea.

Though their cooperation is far from perfect, it appears that enforcement is sufficient that it is finally taking a significant toll on the Hermit Kingdom’s economy.

A recent piece in the Wall Street Journal detailed how Beijing “appears to be ramping up enforcement of international sanctions” and how in just the past six months, cross-border economic activity has ground to a halt. Can anyone doubt that Trump’s tough stand has brought this result?

We do not yet know the details of the steel and aluminum tariffs. Perhaps Trump will stall, leaving unresolved for the time being whether certain countries will be exempt.

That possibility would give our NAFTA negotiators a major bargaining chip to press for key demands, given that Canada and Mexico are sizeable steel exporters and, as NAFTA partners, could argue to be excluded.

In general, they have much to gain from quick resolution of the trade talks. Mexico faces a presidential election come July, and more than half of Canada’s economy comes from trade — one of the highest dependencies in the world.

The proposed tariffs will also keep pressure on China, which is welcome. As Xi Jinping launches his quest for limitless power and unending rule, he won’t enjoy disruptions such as that which might result from trade restrictions.

Though China does not account for a high percentage of steel and aluminum imports into the U.S., it is that country’s oversupply that has driven down global prices and made U.S. companies uncompetitive.

Also, as Commerce Secretary Wilbur RossWilbur Louis RossHillicon Valley: Commerce extends Huawei waiver | Senate Dems unveil privacy bill priorities | House funding measure extends surveillance program | Trump to tour Apple factory | GOP bill would restrict US data going to China Trump officials extend deadline to allow companies to work with Huawei Trump trade adviser pushes back on reports of US-China tariff deal MORE has pointed out, they “transship” product through other nations, so their actual role in metals trading is not clear.

President Trump wants China to play by the rules, and help bring down our trade imbalance. It won’t happen overnight, but it won’t happen at all if the U.S. continues to turn a blind eye to Beijing’s misbehavior.

Maybe, that’s what this tariff move is all about. In the coming week or weeks, we will know for sure. Perhaps there is indeed method in Trump’s approach.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.