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Trade

Donald Trump signs off on sweeping tariffs, singling out ‘unfair’ China and defying trade war warnings

The tariffs of 25 per cent on imported steel and 10 per cent on aluminium will come into effect in 15 days

PUBLISHED : Friday, 09 March, 2018, 4:47am
UPDATED : Friday, 23 March, 2018, 12:05pm

US President Donald Trump has imposed tariffs on steel and aluminium, defying many policymakers in his own Republican Party and setting up a conflict with domestic manufacturers and countries not considered to be allies.

While Canada and Mexico were exempted from the tariffs of 25 per cent on steel and 10 per cent on aluminium because of their status as regional allies, China was singled out in a speech Trump gave about unfair trading practices that he called “an assault on our country”. China was also the only country named in a White House statement on the tariffs, amid a worldwide glut of aluminium that has shuttered US smelters.

Trump also hinted at further punitive measures aimed at China to rein in a bilateral trade deficit pegged at a record US$276 billion last year.

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“We have to protect and build our steel and aluminium industries while at the same time showing great flexibility and cooperation toward those that are really friends of ours, both on a trade basis and a military basis,” Trump said from the White House.

“A strong steel and aluminium industry are vital to our national security. Our industries have been targeted for years and years, decades in fact, by unfair foreign trade practices. This is not merely an economic disaster, but it’s a security disaster.”

In the week leading up to Trump’s announcement, the US leader came under pressure from many influential members of his own party for aiming punitive trade measures at strategic allies, including Canada and the EU, and faced calls to re-direct protective measures at China.

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Summing up the sentiment, Paul Ryan, speaker of the Republican-controlled House of Representatives, said this week: “Clearly, there is overcapacity dumping in transhipping of steel and aluminium by some countries, particularly China. But I think the smarter way to go is to make it more surgical or more targeted.”

In a statement on the tariffs on Thursday, he said: “I disagree with this action and fear its unintended consequences.”

The announcement underscored the flexibility Trump’s tariff directive has in terms of choosing between allies and strategic competitors. The White House has set a 15-day delay on the imposition of the higher taxes to allow time for negotiation with trading partners.

“The president welcomes any country with which we have a security relationship to discuss alternative ways to address our concerns, including our concerns about global excess capacity,” according to a White House statement. “He has left open an avenue for potentially modifying or removing a tariff under certain conditions for individual countries.”

Starting a trade war is ‘wrong remedy’ for disputes, China tells US

“This is an escalation of a major conflict,” Shang-Jin Wei, Senior Scholar at the Jerome A. Chazen Institute for Global Business at Columbia Business School, told the South China Morning Post in an interview.

China will certainly make an appropriate and necessary response
Chinese Foreign Minister Wang Yi

“The economic success of China has, for the past 40-something years, depended on a relatively open world economy and its ability to trade with the world, so from that point of view China does not want to have a trade war.”

China warned on Thursday it was ready to respond to US tariffs if they materialised. “Choosing a trade war is surely the wrong prescription, in the end you will only hurt others and yourself,” Foreign Minister Wang Yi said, adding that “China will certainly make an appropriate and necessary response.”

China and other countries affected by the tariff decision may find it easy to strike back because of the ambiguity of Trump’s claim that US national security is at stake.

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“Appealing to this national security argument is debatable,” Vibhas Madan, director of the school of economics at Drexel University’s LeBow College of Business, told the Post.

“I don’t believe there’s been a full-blown study, so that’s something that puts the US on thin ice because it’s easier for other countries to retaliate by saying it’s a spurious argument and the basic tenets of the [World Trade Organisation] are being violated.”

In arguing against the imposition of import tariffs, US Senator Orrin Hatch, the second-highest ranking congressional Republican, drew a distinction between countries like South Korea, which he called “an important ally”, and “foreign nations that harm American businesses and undermine the world trade system”, a thinly veiled reference to China.

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Hatch made the remarks last week at an event organised by the US Chamber of Commerce, a group that includes manufacturers such as Ford Motor Company and is traditionally aligned with the Republican economic agenda.

The industry association’s president and CEO, Thomas Donohue, was even more direct than Hatch in opposing tariffs while stressing the need for action against China.

Trump’s tariff plan, Donohue said a day before the White House announcement, “would directly harm American manufacturers, provoke widespread retaliation from our trading partners, and leave virtually untouched the true problem of Chinese steel and aluminium overcapacity”.

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I disagree with this action and fear its unintended consequences
Paul Ryan

“Alienating our strongest global allies amid high-stakes trade negotiations is not the path to long-term American leadership.”

Calls for protection against Chinese trade practices might be the only economic issue on which Republicans and Democrats agree.

“China has taken terrible advantage of America over the past decade or two, and they don’t play fair,” Senate minority leader Chuck Schumer said ahead of the announcement, urging the Trump administration to “make sure what they do is focus on China. They are our number one trade problem; not Canada, not Europe.”

Trump’s comments after the tariff announcement appeared to respond to the political demands and to go even further than higher taxes on metal.

“Other countries have added production capacity that far exceeds demand and flooded the world market with cheap metal that is subsidised by foreign governments,” Trump told reporters. “For example, it takes China about one month to produce as much steel as they produce in the United States in an entire year.”

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“We’re going to cut down the deficits one way or another … We’re going to be doing a reciprocal tax programme at some point, so that if China’s going to charge us 25 per cent and if India’s going to charge us 75 per cent and we charge them nothing. … we’re going to be reciprocal, it’s a mirror tax.”

Analysts expect the bilateral conflict to spread beyond basic industrial commodities.

Trade wars are bad and easy to lose
EU President Donald Tusk

“You should expect a retaliation from China,” said Madan. “They’re playing an important role in geopolitics right now. For example, they have become a key player in [multilateral trade pact negotiations], which the US withdrew from.

Beijing has led the creation of the Regional Comprehensive Economic Partnership (RCEP), a regional free-trade agreement supported by the 10 members of the Association of Southeast Asian Nations as well as India, Japan, South Korea, Australia and New Zealand.

Talks including all interested countries progressed during an Asean business summit in Manila in November. That was just days after the 11 nations still allied to the Trans-Pacific Partnership (TPP) agreed to rename and push on with their pact, which the United States abandoned in January.