Business World

Wednesday 23 January 2019

Tariffs gamble could yet be Trump's Afghanistan

US Trade Representative Robert E Lighthizer admits that his boss is calling the shots on tariffs. Photo: Andrew Harrer/Bloomberg
US Trade Representative Robert E Lighthizer admits that his boss is calling the shots on tariffs. Photo: Andrew Harrer/Bloomberg

Heather Long

US President Donald Trump's tariffs went out to the world with blinking lights that essentially say: "Don't like this? Call Trump."

His closest economic advisers and surrogates keep telling the public not to fear a trade war.

They say this is Trump being Trump: He is making headlines with the tariffs in an effort to achieve his real goal of renegotiating trade deals with many countries. Trump himself admitted that's pretty much his plan on Thursday.

"Many countries are calling to negotiate better trade deals because they don't want to have to pay the steel and aluminium tariffs," Trump said as he signed an order to impose new tariffs on China.

No one knows if his tactics will succeed or backfire. Trump is blowing up the usual process of bringing trade disputes to the World Trade Organisation that has been in place since 1995.

Instead, he's claiming the authority to put punitive measures on whatever countries and products he wants. He gets to decide the winners and losers. It all looks a lot like his days on the TV show The Apprentice: Just replace "You're fired!" with "You're tariff-ed!"

It is a risky move. Even Trump's own cabinet members admit that publicly, although they argue after years of quiet, civilised talks between the United States and China under Presidents George W Bush and Barack Obama, it's time for aggressive action, especially over Chinese theft of US intellectual property.

Adam Posen, head of the Peterson Institute for International Economics, warns this could turn out to be the economic equivalent of "Trump's Afghanistan", a costly mistake that damages the economy and hamstrings America's future by souring relations with the rest of the world. It only took the Chinese a few hours to retaliate by announcing counter-tariffs. There's a plausible scenario where Trump fires off an angry tweet to pile on more tariffs and the situation escalates quickly. The biggest losers in a trade war are likely to be farmers in Trump-supporting states.

"My biggest concern is that both sides believe they have the upper hand" in a trade fight, said Evan Medeiros, who served as the senior director for Asian affairs on Obama's National Security Council. "China can sustain pain much longer than the US can and it has the ability to harass numerous American companies operating in China."

Trump has famously said he thinks he can win a trade war, but history shows the last time the United States got into a big one - back in the 1930s - it caused a bad economic situation to get worse and other countries to form trading blocs without the United States.

Even smaller-scale trade actions like Obama's tariffs on tyres or Bush's on steel yielded more job losses than gains, studies have found.

Wall Street had an ugly day last Thursday, nose-diving more than 700 points after Trump signed the China tariffs. Investors may have been particularly skittish after Trump looked into the camera during the signing and told the world: "This is the first of many."

Foreign leaders and business executives don't know how to read Trump's unpredictability on trade. For now, most are begging him to give them a break. He's signalled an openness to exempting even more countries from the steel and aluminium tariffs, and his administration has yet to announce which Chinese imports will face tariffs (or how high the taxes will be), unleashing a fresh lobbying push.

"It has the feeling of being chaotic... because there is no clear policy," said a partner at a Washington law firm that's working with many clients seeking exemptions from the tariffs. The lawyer spoke on the condition of anonymity to speak freely about what's going on. "I spent most of the day on the phone with anxious clients."

US Trade Representative Robert E Lighthizer admitted to Congress this week that while he is technically America's top trade negotiator, the tariff decisions - and who's in and out of them - ultimately belong to Trump.

Washington Post

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