U.S. President Donald Trump speaks during the Opioid Summit in the East Room of the White House in Washington, D.C. (Photographer: T.J. Kirkpatrick/Bloomberg)

With Friends Like These ... Trump's Tariffs Hurt Asian Allies

(Bloomberg) -- With friends like these ...

Asia-Pacific nations weighing whether to tie their fortunes to China’s economic juggernaut or stick with the U.S. have a new variable to consider: President Donald Trump’s planned tariffs on steel and aluminum. Despite evidence the levies will damage many of the U.S.’s traditional allies, the administration shows scant sign of carve-outs for specific countries.

Trump’s tariffs risk further distancing the U.S. from Asia, after the president withdrew from the Trans-Pacific Partnership pact last year. The 11 remaining members have decided to go ahead with a new trade agreement without the U.S., which will be signed on March 8.

“This will be seen as the latest, and one of the more significant, signals that the U.S. under Trump is not a reliable economic partner,” said Roland Rajah at Sydney-based think tank the Lowy Institute. Rajah previously worked at the Asian Development Bank and Australia’s foreign affairs department. “The fact that so many allies have been conflated with a move supposedly targeting China makes clear this is about protectionism, not security.”

Trump said last week he would impose tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time,” and is expected to sign a formal order as early as this week. For front line U.S. ally South Korea, that’s the second action out of Washington this year that’ll hurt its economic interests after restrictions were placed on washing machines and solar panels.

The backlash there has already started. Hyundai Motor Co. has warned it may rethink how many vehicles it builds in the U.S. in response to Trump’s plan. The South Korean automaker builds Hyundai Sonata and Elantra sedans and Santa Fe Sport crossovers at a plant in Alabama. Affiliate Kia Motors Corp. also assembles Sorento sport utility vehicles and Optima sedans in Georgia.

Toyota Motor Corp., which plans to build a new $1.6 billion factory in Alabama with Mazda Motor Corp., has said the administration’s decision will “adversely impact” auto companies by increasing costs and prices of cars and trucks sold in the U.S.

The risk is that the Trump administration’s explanation for the tariff decision sparks a full-blown trade war, according to Deborah Elms, executive director of the Asian Trade Centre.

“By using ‘national security’ as the justification for what is basic protectionism, it opens the gates wide open for every other country in the world to do the same,” said Elms, who is also a senior fellow in the Singapore Ministry of Trade and Industry’s Trade Academy. She said “the Trump remedy” is going to “hit the entirely wrong targets.”

Former Australian Prime Minister Kevin Rudd said America’s allies are likely to suffer fallout from the Trump administration’s move.

“The unifying factor in the targets of the trade remedy cases so far is that the countries in question have large bilateral trade surpluses with the U.S. and/or are selling into manufacturing sectors that have lost significant numbers of jobs,” said Matthew Goodman, a senior adviser for Asian economics at the Center for Strategic and International Studies and a former Obama administration official. “The fact that some of them are allies is secondary.”

The U.S. is banking on continued loyalty from its Asian allies, many of which grew richer in part due to access to its market. Yet China has overtaken it as the No. 1 buyer for most Asian economies, and its rising middle class is a coveted market for companies across the region.

Compounding the unease for policymakers from Seoul to Singapore and Sydney, Trump is also withdrawing from multilateral groupings, and more trade actions may be on the way. By backing out of the TPP deal, the U.S. loses the benefit of lower trade barriers in some markets in Asia, which is home to four of America’s top-10 biggest export markets.

“This is all by way of a foretaste of Trump’s coming decision on section 301 actions against China over alleged intellectual property rights losses,” said Douglas Paal at the Carnegie Endowment for International Peace, who worked on the National Security Council for presidents Reagan and Bush senior. “If the trend continues toward stronger measures and Trump approves recommended tariffs and ‘fines,’ which he has threatened will be very high, he could turn trade skirmishes into trade war.”

The tariffs are part of Trump’s plan to counter what he says are decades of unfair trade practices and ill-advised trade agreements that have robbed the U.S. of revenue and jobs.

“For a while, Trump’s bark seemed worse than his bite,” said Lowy’s Rajah. “That seems to be shifting fast.”

©2018 Bloomberg L.P.