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What is the lowdown on Trump’s trade wars

What is it?

On August 23, the U.S. and China imposed new tariffs on $16 billion imports from each other, completely carrying out the threats and counter threats made in April. Now, China and the U.S. have tariffs on imports of $50 billion from each other. More is coming. On July 10, the U.S. announced plans to have tariffs on $200 billion of Chinese imports, and on July 20 President Donald Trump said he was ready to impose tariffs on all imports from China. The U.S. imports from China totalled $504 billion in 2017. The Trump administration believes that since the U.S. imports from China are more than its exports to China, it would win any tariff war. That is an untested claim.

How did it come about?

What is clear is that the administration of President Donald Trump is clearly in the grip of the nationalists, who have outsmarted the globalists in it. Commanding the trade war on Mr. Trump’s behalf is Peter Navarro, White House’s Director of Trade and Industrial Policy. His main target is China, whom he accuses of “economic aggression,” but the war is total. Key military allies of the U.S. — Canada, Germany, South Korea, Japan, and Turkey — are today locked in multiple trade disputes with it, being fought at multiple forums. So are countries such as Mexico and India, close partners of America, though not military allies. Mr. Trump and Mr. Navarro claim they are both free traders. “For this administration, free trade means trade that is free, fair, reciprocal and balanced. And in a world where we have free, fair, reciprocal and balanced trade, we would have zero tariffs. We would have zero non-tariff barriers. We would have zero subsidies to industry. We would have zero incidents of currency manipulation and currency undervaluation,” Mr. Navarro said, explaining the rationale for expanding restrictions on trade and investment by the U.S. at a discussion in the American capital recently. He accused China, Japan, Germany and South Korea, among others, of being in violation of the above principles.

Why does it matter?

In January, the administration imposed tariffs on import of washing machines and solar panels to America. China and South Korea took the issue to the World Trade Organisation (WTO). The U.S. would respect decisions by the WTO when they are in its favour and reject the rest, National Economic Council (NEC) Director Larry Kudlow said in June. Tariffs of 25% on steel and 10% on aluminium on all trading partners, announced in March citing national security grounds, in an unprecedented move, have also kicked in. The EU, Canada and Mexico, which supply around half of all steel and aluminium imports to the U.S., retaliated with their own tariffs. The U.S. has filed WTO complaints against several countries that imposed retaliatory tariffs.

What lies ahead?

While the trade war is widely seen as a Trump initiative, there is bipartisan support in the U.S. Congress for tough measures against China. The U.S.’s annual trade deficit is around half a trillion dollars. China accounts for 50% of this, according to Mr. Navarro. The EU accounts for 20% and Japan and Mexico combined make 18%. Mr. Trump and Mr. Navarro believe that this has nothing to do with competitive advantage of others but happens only because of the unfair practices of America’s trading partners. The surplus earned by China comes back to the U.S. economy as investments. The Trump administration is also cracking down on Chinese investments in U.S. companies. Bringing traditional manufacturing back to America is a difficult task, and American policy makers are conscious of that fact. The trade war appears more focussed on stopping China from commanding the lead in technologies of the future. The National Defense Authorization Act for 2019 has provisions on monitoring some foreign investments in the U.S. and outbound transfers of technology.

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Printable version | Feb 27, 2020 5:24:45 PM |

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