In trade fights, Trump tar­gets U.S. al­lies, too

The Saratogian (Saratoga, NY) - - FRONT PAGE - By Paul Wise­man AP Eco­nomics Writer

WASH­ING­TON >> Pres­i­dent Don­ald Trump has risked tur­moil in the fi­nan­cial mar­kets and dam­age to the U.S. econ­omy in wag­ing his trade war with China, Amer­ica’s top strate­gic ri­val.

But Trump hasn’t ex­actly gone easy on Amer­ica’s friends, ei­ther. From Europe to Ja­pan, the pres­i­dent has stirred up un­der-the-radar trade dis­putes that po­ten­tially could erupt within weeks or months with dam­ag­ing con­se­quences.

The ad­min­is­tra­tion is seeking, for ex­am­ple, to tax up to $25 bil­lion in Euro­pean Union im­ports in a rift over the EU’s sub­si­dies to the air­craft gi

ant Air­bus. It’s also threat­en­ing to im­pose tar­iffs to pun­ish France for a dig­i­tal ser­vices tax that tar­gets U.S. in­ter­net giants Google, Ama­zon and Face­book.

And come Novem­ber, Trump could take his ag­gres­sive poli­cies into un­charted ter­ri­tory by im­pos­ing tar­iffs on for­eign au­tos and auto parts. This move would risk ig­nit­ing a dam­ag­ing con­flict with Ja­pan and the EU as well as with law­mak­ers on Capi­tol Hill.

The pres­i­dent’s rough tactics have al­ready shaken mar­kets and par­a­lyzed busi­nesses that are strug­gling to de­cide where to ex­pand or in­vest at a time when the rules of global com­merce can be up­ended with one pres­i­den­tial tweet. Their un­cer­tainty has con­trib­uted to a slow­down in global trade and growth.

“He doesn’t seem to be de­terred,” said Wil­liam Rein­sch, a for­mer U.S. trade of­fi­cial who is an an­a­lyst at the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies. “He seems to ar­gue that these things are good and have a pos­i­tive ef­fect for Amer­ica.”

On trade, Trump is gov­ern­ing as he said he would. He casts the gap­ing U.S. trade deficit — $628 bil­lion last year — as in­dis­putable proof that Amer­ica is be­ing ripped off by its trad­ing part­ners and that the free­trade deals his pre­de­ces­sors ne­go­ti­ated are rigged against U.S. com­pa­nies. As a can­di­date, Trump pledged to forge more U.S.-friendly deals and to de­ploy tar­iffs to bend other coun­tries to his will.

Main­stream econ­o­mists take a de­cid­edly dif­fer­ent view of Amer­ica’s trade deficit. They say it re­flects a fun­da­men­tal re­al­ity that won’t yield to changes in trade pol­icy: Amer­i­cans con­sume more than they pro­duce. And im­ports fill the gap.

Among Trump’s nu­mer­ous trade fights, his stand­off with China has drawn by far the most at­ten­tion. And for good rea­son: His ad­min­is­tra­tion is wag­ing the big­gest trade war since the 1930s against the world’s sec­ond-largest econ­omy in a fight over Bei­jing’s ag­gres­sive push to sup­plant Amer­ica’s tech­no­log­i­cal dominance. Trump has im­posed tar­iffs on $360 bil­lion in Chi­nese im­ports and is pre­par­ing to tax the re­main­ing $160 bil­lion in goods that have so far been spared.

Yet Bei­jing is hardly the only U.S. trad­ing part­ner to draw Trump’s fury. He has as­serted that the EU’s trade poli­cies are even worse than China’s and has threat­ened to use tar­iffs against the 28-coun­try trade bloc, which has long been a vi­tal U.S. ally.

“Sadly, in many cases it is our al­lies that took the great­est ad­van­tage of this coun­try,” Trump said at a cam­paign rally Mon­day. “Now you have a pres­i­dent who un­der­stands I am not supposed to be the pres­i­dent of the world. I’m supposed to be pres­i­dent of the United States.”

Trump’s Of­fice of the U.S. Trade Rep­re­sen­ta­tive has drawn up lists of $25 bil­lion in EU im­ports — in­clud­ing air­craft, gouda cheese, waf­fles and olives — that the U.S. could hit with tar­iffs in re­tal­i­a­tion for the bloc’s sup­port of Air­bus.

Last year, the World Trade Or­ga­ni­za­tion ruled that the EU had in­deed il­le­gally sub­si­dized Air­bus. An ar­bi­tra­tor will de­cide how much com­pen­sa­tion the United States is en­ti­tled to but could pro­duce a fig­ure that falls well short of what the Trump ad­min­is­tra­tion wants.

A much bigger hammer could drop this fall.

Trump last year or­dered the Com­merce De­part­ment to in­ves­ti­gate whether im­ported au­tos and auto parts posed a threat to Amer­ica’s na­tional se­cu­rity — a des­ig­na­tion that would al­low Trump to im­pose tar­iffs un­der a rarely used pro­vi­sion of Amer­i­can trade law. Com­merce Sec­re­tary Wil­bur Ross duly de­cided that for­eign cars did im­peril the United States. (The ad­min­is­tra­tion last year in­voked the same jus­ti­fi­ca­tion to tax im­ported steel and alu­minum.)

But the ad­min­is­tra­tion in May de­cided to post­pone any ac­tion on au­tos for six months un­til mid-Novem­ber.

Tar­iffs on auto im­ports would mark a drastic es­ca­la­tion of trade hos­til­i­ties. The United States last year im­ported $192 bil­lion worth of pas­sen­ger cars and light trucks and an ad­di­tional $159 bil­lion in auto parts. Vir­tu­ally no one out­side the White House sup­ports auto tar­iffs, which would dis­rupt man­u­fac­tur­ing sup­ply chains, raise prices for Amer­i­can con­sumers and open a diplo­matic rift with Europe and Ja­pan.

If Trump pro­ceeds with the taxes, he would likely face push­back in Congress. Law­mak­ers are al­ready con­sid­er­ing leg­is­la­tion to scale back his nearly un­lim­ited au­thor­ity to im­pose tar­iffs on na­tional se­cu­rity grounds.

The pres­i­dent is us­ing the loom­ing tar­iffs to try to pry con­ces­sions from Europe and Ja­pan. Last month, the EU agreed to im­port $270 mil­lion worth of U.S. beef an­nu­ally. Trump cred­ited his tar­iff threat.

“The EU has tremen­dous bar­ri­ers to us, but we just broke the first bar­rier,” he said then. “Maybe we broke it be­cause of the fact that if I don’t get what we want, I put on auto tar­iffs.”

Like­wise, Ja­pan hopes to reach an agree­ment that would ex­empt it from Trump’s steel and alu­minum tar­iffs and from the threat of auto tar­iffs. In ex­change, Tokyo would grant Amer­ica’s farm­ers greater ac­cess to the Ja­panese mar­ket.

But Rein­sch, not­ing that Trump has a his­tory of slam­ming coun­tries with sanctions even af­ter they’ve agreed to his terms, said he thought Tokyo would in­sist that any agree­ment be “signed in blood.”

Pres­sured by the steel and alu­minum tar­iffs, for in­stance, Mex­ico agreed to join Trump’s U.S.-Mex­ico-Canada Agree­ment, a re­vamp­ing of the North Amer­i­can Free Trade Agree­ment that Trump had con­demned as a job-killing dis­as­ter.

But just as trade re­la­tions be­tween the neigh­bors ap­peared to be re­turn­ing to nor­mal, Trump sur­prised even his own ad­vis­ers by threat­en­ing to tax all Mex­i­can im­ports in a to­tally sep­a­rate dis­pute (later re­solved) over im­mi­gra­tion.

Econ­o­mists say grow­ing un­cer­tainty from Trump’s con­fronta­tional trade moves is weak­en­ing Amer­i­can man­u­fac­tur­ing, which con­tracted last month for the first time in three years, ac­cord­ing to the In­sti­tute for Sup­ply Man­age­ment. Fore­cast­ers are down­grad­ing their es­ti­mates of global growth, and fi­nan­cial mar­kets ap­pear sen­si­tive to any per­cep­ti­ble rise in trade hos­til­i­ties.

Philip Levy, chief econ­o­mist at the freight com­pany Fl­ex­port who was an ad­viser in Pres­i­dent Ge­orge W. Bush’s ad­min­is­tra­tion, won­ders if Trump will re­think his stated be­lief that trade wars are “good and easy to win.” Maybe, Levy sug­gested, “With your fin­gers a lit­tle singed, you re­solve not to touch the hot stove again.”

Would Trump still be will­ing, for in­stance, to make good on his threat to aban­don NAFTA en­tirely if Congress doesn’t ap­prove the new ver­sion his team ne­go­ti­ated?

Daniel Ujczo, a trade at­tor­ney with Dick­in­son Wright in Ohio, said “there is a low like­li­hood that Pres­i­dent Trump ac­tu­ally with­draws from NAFTA” — and risks throw­ing $1.4 tril­lion in an­nual U.S. trade with Canada and Mex­ico into chaos.

Still, Ujczo sug­gested, Trump might go through the mo­tions of do­ing so and start a six-month pro­ce­dural clock to a pullout in or­der to in­ten­sify pressure on Congress.

Then again, Trump still en­joys al­most un­wa­ver­ing sup­port from his base among rank-and-file Repub­li­can vot­ers. His sup­port­ers, Levy said, “like it when you fight and not when you act meek.”

The re­sult, Levy con­cluded, is that Trump is “much more likely to dou­ble-down than re­verse course.” Rein­sch agreed: “Un­til he sees po­lit­i­cal con­se­quences, you’re not go­ing to see a change in strat­egy.”

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