Trump's trade volatility will spook partner nations for years

Trump's trade volatility will spook partner nations for years
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As the Trump administration relies with increasing frequency on the threat of higher tariffs or reneging on agreements to push political objectives, the White House is establishing a damaging narrative that could become entrenched well-beyond this presidency, namely, that the United States can no longer be trusted to keep its word.

There is an African proverb: “When elephants fight, it is the grass that suffers.” As President TrumpDonald John TrumpAmash responds to 'Send her back' chants at Trump rally: 'This is how history's worst episodes begin' McConnell: Trump 'on to something' with attacks on Dem congresswomen Trump blasts 'corrupt' Puerto Rico's leaders amid political crisis MORE picks fights with an ever-expanding list of U.S. trading partners — over a diverse list of grievances not all related to trade — domestic manufacturers and farmers are paying the price.

The past six months have proven to be a frustrating period for businesses big and small. How can we proceed boldly, moving a product from concept to production and then the market, when punitive import duties could be imposed virtually-overnight with little warning?

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Market pressures have heightened due to escalating hostilities between the U.S. and China, coupled with renewed tensions with Mexico.

There is general agreement that this, combined with the potential opening of new fronts in the trade war with the European Union and Japan, and possibly India, is damaging business confidence and presents a major downside risk for economic growth.

Now replace the word "business" with "allied country," or "trading partner." If trade agreements and decades-old treaties can be undermined by a tweet, what value do they hold for the other side?

In this highly unpredictable environment, most governments cannot confidently plan for tomorrow — much less make strategic decisions for the long term given the heightened uncertainty and significant disruptions caused by an "America First" United States increasingly willing to flex its economic muscles for political gain.

The Trump administration last month raised tariffs on $200 billion in Chinese imports. The president has withdrawn the country from the Paris Agreement on climate change, pulled out of the Iran nuclear deal and has repeatedly questioned the United States’ commitment to the North Atlantic Treaty Organization (NATO). 

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In a few months’ time, the U.S. could go after the EU and Japan unless they reduce their exports of automobiles to the United States. And just when it looked like trade tensions between the U.S. and its North American neighbors were in our rearview mirror, with the focus on getting the U.S.-Mexico-Canada (USMCA) Agreement ratified by lawmakers  —  President Trump threw a spanner in the works.

The threat to impose tariffs on Mexican exports unless the government acted to stem the flow of migrants from Central America not only created an unnecessary roadblock for the USMCA’s approval by Congress but raised the suspicion of an ulterior motive by the administration.

Automotive vehicles were Mexico’s top export to the U.S. in 2018, and the White House’s statement announcing the emergency measures by the president explicitly noted that “companies located in Mexico may start moving back to the United States to make their products and goods” as a result of higher tariffs.

Trump has long bemoaned the fact that auto companies do not manufacture more of their vehicles in the United States, and given the direct and very negative impact this action would have had on automakers, one cannot help but wonder if this wasn’t really just another ploy in his crusade to force more companies to relocate their manufacturing operations back to the United States.

How can Mexico, or any other country involved in talks with the U.S. going forward, believe Trump — or another U.S. president — will not perform a similar about-face to get what he or she wants.

Just as Congress’ constant machinations around raising the debt limit imperil the financial markets’ unwavering belief in the full faith and credit of the United States government, so have Trump’s actions significantly reduced the trust factor in any future negotiations — including Middle East peace talks.

Why should any country willing enter an agreement with the U.S. and abide by the terms when our commitment is no longer considered to be ironclad — unless they are compelled to do so for fear of economic and financial reprisals.

"Once bitten, twice shy" as the saying goes, and with the 2020 presidential elections looming on the horizon, it is hard to see any country going into a negotiation with the U.S. without a measure of doubt in their minds that a political agenda will not trump any agreement regardless of who occupies the White House come January 2021.

Trust is central to any deal, but thanks to the actions of this administration, that is a currency that is now very much in short supply.

Brai Odion-Esene is the founder of SW4 Insights, a public policy advisory firm. He has nearly 10 years experience covering U.S. government policy and international economics for Market News International, a financial newswire service.