Trump threatens total trade war

With just months before the US presidential election, Donald Trump, the likely Republican candidate, has doubled down on his controversial trade policies. In an interview with business channel, CNBC, he re-committed to the imposition of severe tariffs on imports in order, as he sees it, to create a fairer balance for American businesses and consumers.

His belief is that other countries, in particular China and India, have been ‘smarter’ than the US in forcing foreign companies to invest in their markets through a combination of industrial subsidies and barriers to trade. His policy would ‘distort’ international trade in order to encourage US businesses to re-shore production and foreign companies to set up manufacturing locations in the market.

In the interview, he seemed to accept the charge levelled by some economists that tariffs imposed during his first term had cost American households up to $2000. However, he believed that these costs could be offset by tax breaks and other forms of assistance and he was still adamant that erecting trade barriers would be in the long term interests of the economy.

Former President Trump went on to reference the benefits of the 50% tariffs he had imposed on Chinese steel which he said had been dumped on the US market. He said the US industry had been ‘eaten alive’ over the previous 25 years by foreign competition. His regret that the tariff ‘should have been higher’, suggests that a rise could be on the cards if he is re-elected. His focus on steel does not augur well either for the European Union. The 25% tariffs he imposed on European steel were paused (not abolished) by President Biden and it is very probable that this suspension will be lifted at an early stage in Trump’s new term. His attitude to Europe was summed up by his statement, ‘The European Union rips us almost as bad as China, but they do it with a smile.’

Trump views trade policy as a zero sum game rather than, as most free market economists believe, value generating, benefiting both exporting and importing markets. To him, it is a weapon with which to gain concession from your adversaries. As Trump says, ‘It gives you power in dealing with other countries… [China] was so petrified of me putting on additional tariffs…China is right now our boss, they are the boss of the United States, almost like we’re a subsidiary of China.’

Nor was Trump concerned about retaliatory measures. Even if other countries block the entrance of American companies to their markets, he believes that this will still be positive to the US economy as these companies will re-focus their investment on their home market. He referred to the pressure he had placed on Apple to build a plant in Texas as an example of what could be achieved.

Automotive supply chains are another obvious area of concern for Trump. He wants Chinese companies to build vehicles for the US market in the US rather than export them from China. He certainly does not want China to set up plants and supply chains in Mexico and export them across the border, tariff free. ‘We want to get cars made by China in the United States using our workers.’ This may mean that a re-negotiation of the US-Mexico-Canada free trade area is on the cards, depressing the high near-sourcing rates which have been driving cross-border trade.

Interestingly, Trump also highlighted India throughout his interview. Whilst critical of the government’s protectionist policies which have disadvantaged US manufacturers, he praised the outcomes from an Indian perspective. He mentioned that American motorcycle manufacturer, Harley-Davidson, was forced to build a factory in India in order to avoid 100% tariffs. ‘Under me, we started doing the same thing here and we have a pot of gold.’ He summed up his approach with the message, ‘I made other countries ‘sing’ with the threat of tariffs and if you don’t have tariffs we have nothing whatsoever on them.’

If America’s trade partners weren’t worried before about the prospect of Donald Trump’s re-election, then they really should be now. This will mean little to the man himself, who believes that US workers have been economically betrayed by previous administrations. As he has previously communicated, all imports are likely to face 10% tariffs but it seems that this will be just the start. It very much sounds as President Trump will not only be targeting China in a new total trade war, but will be opening up or extending new fronts against markets which will include Mexico, India and even Europe.

Author: John Manners-Bell

Source: Ti Insight

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