Global anger boiling over at Trump’s trade war
China and EU mull options for retaliation as president boasts US will easily win tariff battle with rivals
THE world is on the brink of the most dramatic trade confrontation of modern times after President Donald Trump openly threatened “trade wars” as a tool of US policy, prompting warnings of full retaliation by major powers across the world.
Stock markets plunged in Asia and Europe for a second day as international investors digested the implications of sweeping US tariffs of 25pc on steel and 10pc on aluminium. The measures are viewed universally as an impetuous and unprovoked assault on the trade system, evoking memories of the Smoot-hawley tariffs of 1930.
The shocking twist is that President Trump seemed to relish the chance for a dangerous showdown, tweeting yesterday that “trade wars are good, and easy to win”. A view has taken hold in the White House that deficit countries suffer less than surplus states in a trade rupture, which neglects the risk that events can spiral out of control.
The White House has exploited a “golden loophole” dating back to the Cold War allowing the US to invoke national security to impose barriers, arguing that surging inflows of foreign steel leave the US arms industry and defence forces at the mercy of hostile suppliers. Use of this clause effectively blocks any future remedies at the World Trade Organisation by injured countries.
The IMF last night warned the US against using such measures, saying that they could “de facto, expand the circumstances where countries use the national-security rationale to justify broad-based import restrictions”.
Bernd Lange, head of the European Parliament’s trade committee, called the US move a “declaration of war” and accused the Trump administration of reverting to the mercantilist doctrines of the early 19th century. The EU trade commissioner, Cecilia Malmstrom, warned of a “dangerous domino effect” as steel shipments diverted from the US flood the world and force Europe to take safeguard measures.
Brussels is adept at surgical retaliation against the US, picking targets intended to inflict the maximum political damage in tight electoral contests. It is already looking at Harley-davidson motorbikes, bourbon whisky, and Florida oranges. The Europeans are deeply frustrated because the US and the EU have much the same grievance against China, which has been subsidising its steel industry with cheap credit and energy. The Chinese are almost singlehandedly responsible for the 800m tons of excess capacity overhanging the global market over recent years.
For Mr Trump, the dispute has become a visceral matter. “What’s been allowed to go on for decades is disgraceful. When it comes to a time where our country can’t make aluminium and steel, you almost don’t have much of a country. You’ll have protection for a long time,” he told business leaders.
The president has picked the toughest of three possible options presented by the US Commerce Department, opting for blanket tariffs rather than selective measures aimed at China and other countries deemed to be trade violators. It will not be clear until next week how much of this is bluster, and whether the White House intends to exempt close allies. The US defence department has urged caution in handling intimate friends such as Canada and Britain.
The British government was lobbying feverishly in Washington in what is becoming a painfully familiar routine. It failed to prevent a potentially devastating decision last year on the Canadian plane maker Bombardier that could hit the operations of Northern Ireland’s biggest employer.
Richard Warren, policy chief of UK
Steel, said: “There is still a lingering hope these tariffs may not target the UK and EU.”
Britain exports £360m worth of niche “high-value” steel products to the US annually. Much of this trade would no longer be viable.
British officials had been given quiet assurances over recent weeks that the UK would be spared, but the White House itself is in chaos, with ultra-protectionists led by Peter Navarro in the ascendancy.
Global markets have been complacent over the last year about the risk of radical moves by Mr Trump, deeming his bark is worse than his bite. They may have misread the politics of Washington.
The conflict risks taking the world into a new Hobbesian order where rules give way to raw power. Mr Trump’s real target seems to be countries that run big surpluses with the US, which means chiefly East Asia but also Germany and Mexico, (Britain is in balance). Behind it is a bigger geopolitical struggle.
If China is the enemy in Mr Trump’s mind, the rival superpower has left no doubt it will hit back with equal force.
It has even indicated that it might dump US Treasuries, just when the US bond market looks particularly fragile. This would blow up in everybody’s face. We are entering a new era where great powers are implicitly threatening an economic variant of “mutual assured destruction”.