Cit­ing un­fair acts, Trump adds tar­gets in trade war

The Washington Post - - FRONT PAGE - BY DAVID LYNCH, RACHEL SIEGEL AND TER­RENCE MCCOY

Pres­i­dent Trump revved up his global trade war on two fronts Mon­day, an­nounc­ing tar­iffs on in­dus­trial met­als from Brazil and Ar­gentina while threat­en­ing even harsher penal­ties on dozens of pop­u­lar French prod­ucts.

The ad­min­is­tra­tion said the moves were nec­es­sary be­cause U.S. trad­ing part­ners were act­ing un­fairly to dis­ad­van­tage both the coun­try’s tra­di­tional eco­nomic pil­lars and its best hopes for fu­ture pros­per­ity.

In a predawn tweet, Trump said he was or­der­ing new tar­iffs on steel and alu­minum from Brazil and Ar­gentina to counter what he called a “mas­sive de­val­u­a­tion of their cur­ren­cies” at the

ex­pense of Amer­i­can farm­ers. The un­ex­pected an­nounce­ment up­ends the Latin Amer­i­can coun­tries’ 2018 agree­ment with Trump to ac­cept quo­tas on their ship­ments to the United States in­stead of the im­port taxes.

Hours later, Robert E. Lighthizer, the pres­i­dent’s chief trade ne­go­tia­tor, re­leased the re­sults of a five-month in­ves­ti­ga­tion that con­cluded a French dig­i­tal ser­vices tax dis­crim­i­nated against Amer­i­can In­ter­net com­pa­nies and should be met with tar­iffs of up to 100 per­cent on $2.4 bil­lion in prod­ucts such as cheese, yo­gurt, sparkling wine and makeup. The pro­posal, which awaits a pres­i­den­tial de­ci­sion, threat­ens to in­ten­sify sim­mer­ing transat­lantic trade fric­tion, com­ing with Trump al­ready ac­cus­ing Euro­pean car­mak­ers of en­joy­ing govern­ment pro­tec­tion from Amer­i­can com­pe­ti­tion.

The French tax “dis­crim­i­nates against U.S. com­pa­nies, is in­con­sis­tent with pre­vail­ing prin­ci­ples of in­ter­na­tional tax pol­icy, and is un­usu­ally bur­den­some for af­fected U.S. com­pa­nies,” Lighthizer said in a state­ment.

Mon­day’s pro­tec­tion­ist flurry came as the pres­i­dent’s “Amer­ica First” trade pol­icy re­mains bogged down at the ne­go­ti­at­ing ta­ble and on Capi­tol Hill less than a year be­fore the 2020 pres­i­den­tial elec­tion.

Even as the pres­i­dent flew to Lon­don for a NATO sum­mit, all the es­sen­tials of Trumpian pol­i­cy­mak­ing — bold ac­tion, de­bat­able eco­nom­ics and sparse de­tails — were on dis­play back in Wash­ing­ton.

Fall­out from the pres­i­dent’s re­newed em­brace of tar­iffs could cloud prospects for fu­ture or on­go­ing talks with coun­tries in Asia and Europe.

“It ought to make a whole lot of peo­ple ner­vous,” said Wil­liam Rein­sch of the Cen­ter for Strate­gic and In­ter­na­tional Stud­ies. “It kind of makes peo­ple won­der what’s the point of ne­go­ti­at­ing if this is go­ing to hap­pen.”

The ad­min­is­tra­tion’s ac­tion against France may be de­signed to cre­ate lever­age for just such a ne­go­ti­a­tion. At is­sue is a 3 per­cent tax France in­tro­duced last year, which the ad­min­is­tra­tion says would un­fairly tar­get the United States’ dig­i­tal econ­omy icons.

French law­mak­ers call the levy “Les GAFA” — an acro­nym for Google, Ama­zon, Face­book and Ap­ple, com­pa­nies that French of­fi­cials ac­cuse of pay­ing in­suf­fi­cient taxes on rev­enue earned in France. (Ama­zon founder and chief ex­ec­u­tive Jeff Be­zos owns The Wash­ing­ton Post.) The com­pa­nies did not re­spond to a re­quest for com­ment.

Ad­min­is­tra­tion of­fi­cials worry that the French tax could set a prece­dent for other coun­tries. Lighthizer said he may open in­ves­ti­ga­tions into sim­i­lar taxes in Aus­tria, Italy and Tur­key.

“The whole point of it is to start a ne­go­ti­a­tion,” said Rein­sch, a for­mer Com­merce Depart­ment of­fi­cial. “Be­cause im­pos­ing a penalty doesn’t solve the prob­lem.”

In­dus­try groups wel­comed the rec­om­men­da­tion, with some, such as the In­for­ma­tion Tech­nol­ogy In­dus­try Coun­cil, call­ing for both coun­tries to work out a “last­ing tax pol­icy res­o­lu­tion” at the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment.

“To­day USTR is de­fend­ing the in­ter­net, which is a great Amer­i­can ex­port,” said a state­ment from the In­ter­net As­so­ci­a­tion, an in­dus­try group.

Apart from the specifics of Mon­day’s or­der, Trump’s tweets amounted to a ro­bust de­fense of his un­con­strained use of im­port taxes.

“U.S. Mar­kets are up as much as 21% since the an­nounce­ment of Tar­iffs on 3/1/2018,” Trump wrote in an ap­par­ent ref­er­ence to the tech­nol­ogy-heavy Nas­daq in­dex. “And the U.S. is tak­ing in mas­sive amounts of money (and giv­ing some to our farm­ers, who have been tar­geted by China)!”

The pres­i­dent’s en­thu­si­asm for tar­iffs is not shared by Fed­eral Re­serve Chair Jerome H. Pow­ell, who has said they are mak­ing ex­ec­u­tives so un­cer­tain about the out­look that com­pa­nies are de­lay­ing in­vest­ments and slow­ing the econ­omy.

Like­wise, the $28 bil­lion in tar­iff rev­enue that Trump has ear­marked for farm­ers hurt by his trade war is ef­fec­tively a tax paid by other Amer­i­cans — and now amounts to more than twice the 2009 bailout of the U.S. auto in­dus­try.

Trump’s ac­tion against Brazil and Ar­gentina took of­fi­cials in both coun­tries by sur­prise. Typ­i­cally, the United States pro­vides busi­nesses with some warn­ing of tar­iff changes, de­lay­ing their ef­fec­tive date to al­low goods in tran­sit to ar­rive at Amer­i­can ports with­out be­ing taxed. But the pres­i­dent tweeted that his tar­iff or­der was “ef­fec­tive im­me­di­ately.”

In a sign of how abruptly Trump had acted, his ad­min­is­tra­tion was un­pre­pared to pro­vide de­tails.

The White House re­ferred ques­tions about the new pol­icy to the Com­merce Depart­ment, which re­ferred a re­porter back to the White House. Of­fi­cials at U.S. Cus­toms and Border Pro­tec­tion, which col­lects tar­iffs from im­porters, re­ferred a re­porter to Lighthizer’s of­fice, which did not re­spond to a re­quest for com­ment.

Com­merce Sec­re­tary Wil­bur Ross told Fox Busi­ness: “Even our friends must live by the rules. Our best al­lies must live by the rules. What the pres­i­dent was con­cerned about was de­te­ri­o­ra­tion of the Brazil­ian cur­rency. That is a fair fac­tor to take into ac­count. It’s a real fac­tor. The lower their cur­rency, the cheaper prod­ucts com­ing in. He felt he had to do some­thing about it. They are not the only one where there are cur­rency is­sues.”

It’s not clear what “rules” the pres­i­dent thinks Brazil or Ar­gentina has vi­o­lated. Brazil’s econ­omy over the past year has barely grown, ad­vanc­ing at an an­nual rate of just 0.2 per­cent. The Brazil­ian cen­tral bank has cut in­ter­est rates three times since Au­gust in a bid to jump-start growth. As a con­se­quence, the Brazil­ian cur­rency, the real, has fallen about 8 per­cent this year against the dol­lar.

Ar­gentina, mean­while, is mired in a fi­nan­cial cri­sis that has left its econ­omy smaller to­day than it was four years ago and re­sulted in a hu­mil­i­at­ing res­cue by the In­ter­na­tional Mon­e­tary Fund. As in­vestors fled, the cur­rency this year lost 37 per­cent of its value. The Ar­gen­tine cen­tral bank has raised its main in­ter­est rate to 63 per­cent in a bid to halt the de­cline.

“Ev­ery­body is mov­ing their money out of Ar­gentina,” said Des­mond Lach­man, an economist at the Amer­i­can En­ter­prise In­sti­tute and a for­mer IMF of­fi­cial. “I’m not sure what he wants the govern­ment to do.”

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