Countering Trump’s Aggression on Trade

(The Bloomberg View) -- The Trump administration’s announcement of tariffs on steel and aluminum imported from Canada, Mexico and the European Union is the latest provocation in Washington’s assault on the global trade system. Canada’s foreign minister has described the policy as “frankly absurd,” and that sums it up well. The question now is how her government and the others should respond.

The policy is absurd because its official rationale is national security. U.S. military demand for steel and aluminum is small, representing only about 3 percent of domestic production. And Canada, the biggest foreign supplier of steel to the U.S., is (or was) a close friend and ally. The real threat to national security arises from a trade policy that undermines this and other alliances for no good reason.

In reality, national security has nothing to do with the new tariffs. The Trump administration is transparently risking the country’s alliances to extort concessions in separate negotiations over Nafta and trade with Europe. It first announced the steel and aluminum tariffs weeks ago, but suspended them as talks went on; insufficient progress, it said on Thursday, meant the stay had to end.

Incidentally, this strategy willfully violates U.S. commitments as a member of the World Trade Organization — so it’s illegal as well as counterproductive. Unfortunately, knowing all this doesn’t tell Canada and the others how best to respond.

Ideally, they’d take their complaints to the WTO and leave it at that. The retaliatory tariffs they’ve promised make no more sense in narrow economic terms than the U.S. tariffs they’re objecting to. The main victims of any country’s tariffs are that country’s own consumers. But doing nothing is politically difficult. The affected governments have to show voters that they aren’t cowed by U.S. economic aggression; and to discourage more of the same, they need to inflict some political punishment on the Trump administration, by hitting U.S. exporters in return.

This is the logic that makes mutually ruinous trade wars, once started, so hard to control.

With luck, the U.S. president will think again about his whole approach to trade and international relations, recognize the costs, and back off. That’s quite possible: Commerce Secretary Wilbur Ross says talks are continuing, and constancy in policy hasn’t been a feature of Trump’s presidency. But if the U.S. doesn’t retreat, Canada, Europe and Mexico should calibrate their responses with great care. 

The EU has threatened retaliatory duties on $3.3 billion of U.S. exports of products such as motorcycles, jeans and whiskey. Canada has promised tariffs on U.S. exports of steel, aluminum and other goods, to match the U.S. tariffs “dollar for dollar.” Mexico says it will levy taxes on U.S. exports of steel, pork, fruits and other farm goods. Complaints, they say, will be lodged with the WTO.

These planned measures look about right. They may be more than the minimum needed for the governments to prove they aren’t lying down, but Trump can’t credibly call them an escalation. He could stop here and make matters no worse.

Unfortunately, Trump has shown no aptitude for making things no worse. And he’s evidently being advised by experts as ill-informed on trade and geopolitics as he is.

It’s worrying. Trump threatened trade war, and at this rate, he might get one.      

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