Trump leading us further down the trade rabbit hole

Trump leading us further down the trade rabbit hole
© Instagram: Bundeskanzlerin

We are moving into uncharted waters with the Trump administration’s announcement that the U.S. will impose $50 billion in tariffs against a wide range of Chinese products, with the first tranche of $34 billion beginning on July 6; as well as tariffs against Canadian, Mexican, European and Japanese steel and aluminum imports. 

Retaliation against U.S. exports by China and key U.S. allies will most certainly follow. President TrumpDonald John TrumpFeinstein, Iranian foreign minister had dinner amid tensions: report The Hill's Morning Report - Trump says no legislation until Dems end probes Harris readies a Phase 2 as she seeks to rejuvenate campaign MORE has also threatened tariffs on an additional $100 billion in imports from China and on imported autos from Germany, Japan and elsewhere. 

ADVERTISEMENT

The administration’s trade actions against China have elicited support from Democratic and Republican leaders. There continues to be legitimate frustration with distortive Chinese trade practices, from heavy state subsidies of Chinese companies to forced technology transfers and joint ventures with Chinese companies as a condition of doing business in China, along with outright theft of American and western technology. 

 

There is less political support, and indeed, bipartisan concern about the imposition of tariffs against our closest  Americans allies on “national security” grounds. 

The president is moving from threats of trade sanctions to the reality of multiple simultaneous trade wars and another conflict involving possible U.S. economic sanctions against European companies over the U.S. withdrawal from the Iran nuclear agreement. We are currently facing economic conflicts the likes and scale of which we have not seen in modern times.  

But these are not only trade disputes. At risk is nothing less than the future strength of the Western alliance; the rules-based World Trade Organization (WTO), which the U.S. government took the lead in creating to resolve trade frictions and which been supported by Republican and Democratic presidents; and the stability of relationship between the U.S. and China, the largest and second-largest economic, political and military powers in the world.

Economists and trade experts disagree on the direct economic impacts of the trade actions. Some see no more than a 0.2-percent hit to U.S. GDP in the months ahead. Stock markets have so far largely shrugged off the trade disputes, focusing instead on the strong U.S. economy.

But others point to signs of strain in global supply chains, rising prices for crucial raw materials, stagnant shipments and the possibility that the impact of these disputes on business confidence may well foreshadow larger economic disruptions.  

At the least, the imported products subject to 25 percent (or higher) tariffs will act like a tax on those products, and the products into which they are incorporated, making them more expensive to U.S. consumers and producers.  

At most, these actions and those that may come, could provoke a far more damaging cycle of protectionist measures by the major trading countries. 

In retaliation for the U.S. tariffs, China has published a list of 659 U.S. products to be targeted, with tariffs on the first group of 105 to begin on July 6, including soybeans, whisky, orange juice, salmon, cigars and automobiles. 

The rest of China's retaliatory tariffs on $16 billion of U.S. products — chemicals, pharmaceuticals and machinery — would go into effect if and when the U.S. imposes the balance of its own $50 billion sanctions.

Moreover, China has scrapped the agreement Commerce Secretary Wilbur RossWilbur Louis RossHillicon Valley: Lawmakers seek 'time out' on facial recognition tech | DHS asks cybersecurity staff to volunteer for border help | Judge rules Qualcomm broke antitrust law | Bill calls for 5G national security strategy Tech gets brief reprieve from Trump's Huawei ban Hillicon Valley: Trump takes flak for not joining anti-extremism pact | Phone carriers largely end sharing of location data | Huawei pushes back on ban | Florida lawmakers demand to learn counties hacked by Russians | Feds bust 0M cybercrime group MORE recently secured to lower their huge trade surplus with the U.S. by purchasing up to $70 billion of additional U.S. agricultural products, natural gas and other goods. 

Likewise, the EU and Canada have listed U.S. products that would receive equivalent tariff increases to those the U.S. is imposing. China has already made clear as well that it will retaliate in kind if the U.S. imposes another $100 billion of tariffs threatened on an unspecified list of Chinese products. 

U.S. trade actions against China, and their retaliation, have far broader implications. This is a clash between a state-dominated economic system and a free-market system.

It's a clash between China, with its 2025 Made in China Strategy, its aggressive military actions in the South China Sea and its state-led “Belt and Road” program to finance massive global infrastructure programs, and the United States, which opposes these initiatives.

The stability of the world order in the 21st century will depend significantly on how the two great powers bridge these vast differences in approach.

Some of China’s untoward trade and economic practices can be attacked by trade actions in the WTO, which the EU and Japan have recently launched. It causes far less friction if the WTO process, imperfect though it is, can be used to the maximum degree.

But recent statements by Trump administration officials cast doubt on their commitment to the WTO as an effective mechanism to address China’s unfair trade practices — and any we may find by other countries. 

The U.S. urgently needs its allies in the difficult battle to hold China to account. What is deeply concerning is that rather than reaching out to them to form a coalition against unfair Chinese trade and investment practices, the administration took harsh actions against them. 

This is dividing and weakening our traditional alliances, to the benefit of China. In fact, the EU, Canada and Mexico have all initiated WTO cases against United States “protectionism.”

In the early months of the administration, the U.S. dropped out of the 11-nation Trans-Pacific Partnership (TPP) trade agreement, leaving it to go it alone. The strong leverage TPP would have provided against China’s aggressive expansion in Asia has now been lost. 

The administration forced a renegotiation of the U.S-South Korea Free Trade Agreement and is also challenging the future of the North American Free Trade Agreement (NAFTA) with Mexico and Canada while engaging in vitriolic attacks on Canada’s prime minister and European leaders. 

The imposition of the steel and aluminum imports against our closest European and Asian allies, based on “national security” grounds, has deeply offended them. Add that to the threatened action against the lifeblood of Germany's and Japan’s exports, their automobiles, and there is the possibility of a perfect storm.

The risk is that the United States strongest allies — the EU, Japan, Canada, South Korea and Mexico — will not only retaliate in ways that further damage the U.S. and global economy, but ultimately will trade more with each other and with China than with the U.S.  

Perhaps this is all a prelude to a grand bargain with our allies and with China. President Trump did tell French President Macron last Friday that he would like to restart trade discussions with the EU. 

But if not, we are entering into rough period with our closest allies, risking further rounds of growth-killing trade sanctions and setting the stage for a classic conflict between a rising power and established power. History teaches us that such confrontations do not end well.  

Stuart Eizenstat is the former U.S. ambassador to the European Union, undersecretary of commerce and international trade, undersecretary of state for economic, business and agricultural affairs and deputy secretary of Treasury in the Clinton administration (1993-2001). He was also the chief White House domestic policy adviser to former President Jimmy Carter (1977-81). He is the author of the new book, "President Carter: The White House Years."

Anne Pence is a former international policy adviser to the State Department (1992-2005).