The Australian political and media class were panicking about the Trump steel and aluminium tariff announcement, so it seemed time that somebody else laid out some ideas about what Trump is doing, who he is doing it with and why. Ongoing trade tensions related to the differential levying of tariffs and other costs on American goods and services are all part of the world trade tensions Trump seeks to alter. Anti-dumping actions plus the transshipping of products and raw materials from country to country to avoid trade rules are in particular focus.
Donald Trump announced on 2 March, his long-foreshadowed plans to impose tariffs on certain named “unfair” competitors by declaring a 25% tariff on steel and 10% on aluminium products.
Mexico and Canada are the two US partners of the US in the North American Free Trade Area, and associated with the Trump tariff push, NAFTA plays into the mix. NAFTA was long on the Trump radar for either radical reform or destruction and it is inextricably linked to the Trump plan to deal with the tariff issue. Only by taking account of NAFTA and the way Mexico and Canada can be bases for manufacture of goods which then enter the United States duty-free, can a proper understanding be had of the complementary nature of the tariff and NAFTA-Reform moves.
Australian media response was uniformly negative from political editors proclaiming on tariffs such as Paul Kelly of the Australian This is Trump’s Most Dangerous Step Yet to first rate economic journalists such as Adam Creighton having a go Donald Trump’s Trade War will Make America Poor Again and ending up being uniformly negative also.
I could argue the points of Adam Creighton as they relate to what others have shown to be the implications from various tariff regimes, but suffice it for this post to limit my response to what was my purpose for thinking that such an article as this was necessary (and overdue).
While there was gnashing of Australian teeth at first, the Trump announcement was followed by political euphoria once Trump moved to the next stage of granting exemptions for special trade partners (which included Australia). Leaving aside the political backslapping by PM Turnbull and his team, some truths about what really matters to Trump and his team about the whole unfinished tariff and NAFTA issues are important in order to predict the future for these decisions.
It is a fact that whilever Trump is the sole concentration of all media and political response, the quality and input of his advisers seem to be overlooked. Many people were seemingly ignorant of the position held by Gary Cohn in the administration as the globalist, Jared and Ivanka friend, Pro-Paris Agreement, Goldman Sacks man in the administration. They seemed to think that he was a solid, “mainstay” of the teams rather than a part, often at odds with those who were totally different financial voices in the administration. Because most administration staff are incessantly the butt of rumours of being ousted or resigning from the administration, there was no excuse to see the Cohn departure as a huge moment.
This was also overlooked, at the time, by American media, where initial reports seemed to sow (or be meant to sow) discord by claiming that Treasury Secretary Steve Mnuchin and Commerce Secretary Wilbur Ross were against the tariff decision also. Not only was this not the case, but it showed how out of touch were the commentators playing this decision as some crude Trumpish way of bludgeoning through a disastrous policy which had not been thought through. This led to claims that panicked congressmen were to pass bills to override the Trump decision. Only Senator Jeff Flake, an avowed Trump, opponent has done so.
We shall see how it all plays out but it is a good idea that everyone who is not blinded by some anti-Trump malaise should spend some little time examining what the advisers (and Trump himself) have actually said about it, about what they are trying to do. Disagree or not, at least those who have done so would have fulfilled more of what the media usually claim they set out to do: see the argument for the other side.
EARLY in 2018 the Trump administration had announced tariffs on imported washing machines (20%) and solar panels (30%). It affected some NAFTA partners also and caused various mutterings about payback, trade wars and so on. However, the World Economic Forum was meeting at Davos in Switzerland that month and the American President Donald trump had decided to attend.
A convenient start to disabusing someone of thinking the steel and aluminum tariff rises was a rushed, necessarily ill-thought out decision, some in-depth analysis shown by the Commerce Secretary Wilbur Ross at Davos is a good starting point. In a discussion with a number of others zeroing-in on US trade policy post washing machine/solar panels tariffs, the hour is dominated by Ross.
All of the Wilbur Ross contribution is very important to understand what Trump is doing. Ross is quite clear on a number of points and gets no disagreement from the group. Specifically, China is superb at free trade rhetoric and equally superb in protectionist behavior; China is directly targeted as a US objection to the practice of forcing foreign companies to manufacture locally, force a joint venture and the joint venture partner then forces technology transfer.
Real bite in the talk comes in the Q and A session when Ross lays it out that China is flooding the world with steel, using subsidies to export its oversupply unemployment problem to be an unemployment problem for other countries, particularly the USA.
Most importantly, the issue of countries using transshipping to move products to 3rd countries and then to enter the US or other trading nations via trade agreements with those 3rd countries is seen as a subterfuge to avoid trade rules. Blanket tariffs were a method to block rogue nations and companies moving manufacture around from country to country outpacing trade actions against them. It was to stop that that blanket tariffs were put onto washing machines and that is a template for other failures in the dumping rules.
ONE FINAL POINT when calling for some caution in analysing these moves, there is a persistent media and political drum beat that this is all a shock from both an “incompetent” Trump or his advisers. While we would hope that careful observers would listen and read to what people like Ross and Mnuchin actually say and believe, Donald Trump isn’t exactly an unknown quantity. A speech by Trump in Las Vegas in April, 2011 is worthwhile viewing.
It has a lot in it, including China, tariffs unfair competition, coal, the media and a prediction – in April 2011 – that Iran would dominate Iraq.