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Trump’s Foreign Trade Policy: Opening a Pandora’s Box?

 5 min read / 

The potential costs of Trump’s anti-trade agenda are becoming increasingly clear.

According to a senior Chinese industry official, the administration’s investigation into China’s intellectual property practices risks provoking a trade war between the world’s two largest economies. His comments came during a hearing on October 10th, part of an International Trade Commission probe into charges that Chinese companies have stolen software or forced firms to hand over IP as part of the cost of doing business with one of the fastest-growing global markets. The investigation is being carried out under the rarely used Section 301 of the 1974 Trade Act, which could result with Trump enacting a broad range of unilateral tariffs and import restrictions on Chinese goods.

Economic Nationalists

The biggest economic nationalists in Trump’s circle, like National Trade Council chief Peter Navarro and Secretary of Commerce Wilbur Ross, have long been gunning for such protectionist measures. Some US businesses and trade associations say that Chinese IP protection efforts are progressing, urging the Trump administration to coordinate with like-minded allies and the World Trade Organization, instead of taking unilateral actions that would put bilateral trade at risk. They’re right. Though it’s true that IP theft costs the US considerably in terms of technology and jobs lost, broad punitive measures will only end up backfiring.

First, while the measures that Trump’s trade hawks are promoting might win them political points with their political base, such moves will only put upward pressure on the federal budget deficit in the long term. In fact, between January and July, trade figures show that the deficit grew by almost 10 percent ($28bn), part of it due to Trump’s nationalist policies that have pushed companies to import more, in expectation of future tariffs.

In August, the White House proposed slapping duties on aluminium foil in response to allegations that China had been dumping foil in the US market, and Beijing responded by threatening to curtail soybean imports. This is no small threat from a country that is worth $16bn for US soybean farmers and is classed as the top export market for American agricultural goods. Partly due to protests from US agriculture, the administration has announced it will delay a final decision for now.

Trump’s Myopia?

But the possibility of such retaliation is precisely why trade economists have slammed Trump’s policies as short-sighted. After all, economic nationalism can go both ways. Washington can’t expect to impose new restrictions on imports without risking limiting market access for some of the US’ last few export-oriented sectors.

What’s more, although the aluminium foil issue might have cooled for now, the White House continues to plough forward with its nationalist agenda on other fronts, risking further harm to US business and consumers. Earlier this summer, the Trump administration announced its intent to impose tariffs on steel and aluminium imports under Section 232 of the 1962 Trade Expansion Act, which allows the president to impose import restricts to protect national security.

It’s true that the US and Europe have been grumbling about Chinese overcapacity and dumping in their markets. But the claim that steel and aluminium dumping is a threat to national security is specious. As for aluminium, the amount used by the American military is relatively small. Most imported aluminium comes not only from China but from Canada, Russia, the UAE, and Mexico, and is mainly used for civilian purposes like car manufacturing, packaging, consumer goods, roofing, and road signs. None of these industries are linked to national security concerns, but they do rely heavily on affordable imported aluminium in order to manufacture finished products – which, as it happens, account for an increasing proportion of GDP in an economy as diversified as the US’.

US Suppliers

This means that foreign producers like Rio Tinto, Rusal, or Norsk Hydro are increasingly acting as major cogs in the US supply chain. Given the fact that US-Canada relations are so close that American law has defined Canada as part of the national technology and industrial base for more than two decades, the possibility of restrictions on imports from a firm like Rio Tinto would be absurd. The same goes for other critical US suppliers like Rusal and Norsk Hydro. Rusal, for one, is a key supplier for the American value-added product industry, accounting for roughly 20% of market share. Like Norsk Hydro, the firm relies on hydropower to provide electricity for its smelters, making it a vital source of low-carbon aluminium for the US market.

Unfortunately, the administration seems immune to such logic. The proposal to raise steel and aluminium tariffs has since been joined by a whopping 300% tariff on Canadian aerospace company Bombardier, new duties on softwood lumber from Canada, and potential restrictions on washing machine imports, which all threaten to harm US industry and consumers.

Conclusion

To be fair, Trump isn’t the only president who has made moves to protect the US market. The two previous administrations opened up about 200 anti-dumping investigations. But unlike Trump, Obama and Bush had a better understanding of the interdependence of global markets and the fact that retaliation has ripple effects. Neither of them threatened to rip up trade agreements or to subvert the WTO instead of relying on its rules to defend US industry. But with Trump’s nauseating attachment to his distorted “America First” vision, that world trade order is now circling the drain.

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