Why Donald TrumpвЂ™s combative trade stance toward his allies poses risks
WASHINGTON вЂ” Insulting the host, alienating allies and threatening to suspend business with other countries: President Donald Trump was in full trade-warrior form for the weekend summit of the Group of Seven wealthy democracies in Canada.
The presidentвЂ™s acrimony raised the risk of a trade war that could spook financial markets, inflate prices of goods hit by tariffs, slow commerce, disrupt corporations that rely on global supply chains and jeopardize the healthiest expansion the world economy has enjoyed in a decade.
Leaving the conclave in Quebec on Saturday, Trump threatened to вЂњstop tradingвЂќ with AmericaвЂ™s allies if they defied his demands to lower trade barriers. And he shrugged off the risk that his combative stance would ignite escalating tariffs and counter-tariffs between the United States and its friends вЂ” the European Union, Canada, Japan and Mexico.
вЂњWe win that war a thousand times out of a thousand,вЂќ the president declared before jetting off to negotiate the denuclearization of the Korean peninsula.
Later, he picked a Twitter fight with the host of the G-7 conclave. Calling Prime Minister Justin Trudeau of Canada вЂњvery dishonest and weak,вЂќ Trump said the U.S. was withdrawing its endorsement of the G-7вЂ™s communique, in part over what he called TrudeauвЂ™s вЂњfalse statementsвЂќ about U.S. tariffs at a news conference.
вЂњI think the way this plays out is we end up with our trading partners responding in kind вЂ” a threat for a threat, a tariff for tariff,вЂќ said Rod Hunter, a lawyer at Baker McKenzie and a former economic official on the National Security Council. вЂњYou end up with gradual escalation.вЂќ
The summit at QuebecвЂ™s Charlevoix resort failed to produce any truce in an intensifying trade conflict. Trump has imposed tariffs on steel and aluminum imported to the United States from the EU, Canada and Mexico. He has justified the tariffs by claiming that a reliance on foreign steel and aluminum threatens U.S. national security.
Outraged, the allies have responded by targeting American products, including cheese, bourbon and pork. On Saturday, Trump warned that вЂњif they retaliate, theyвЂ™re making a big mistake.вЂќ
TrudeauвЂ™s assessment was glum.
вЂњIf the expectation was that a weekend in beautiful Charlevoix with all sorts of lovely people was going to transform the presidentвЂ™s outlook in the world,вЂќ the Canadian prime minister said, вЂњthen we didnвЂ™t quite reach that bar.вЂќ
Trump had run for the presidency on a vow to shrink the gaping U.S. trade deficit вЂ” $566 billion last year. To him, the gap between the value of what America sells and what it buys in foreign markets reflects economic weakness, trade accords that are unfair to the U.S. and abusive policies by other countries.
Turning his campaign rhetoric into action against friend and foe, he has taxed imported solar panels and washing machines, imposed tariffs on steel and aluminum, threatened tariffs on up to $150 billion worth of Chinese products and ordered an investigation into whether imported cars, trucks and auto parts should be taxed вЂ” on national security grounds.
вЂњHeвЂ™s a puncher or a counterpuncher, and he thrives on conflict,вЂќ Hunter said. вЂњHeвЂ™s not likely to change. As long as heвЂ™s president, this is the approach we have to expect.вЂќ
Tim Buthe, a Duke University political scientist who studies trade, said, вЂњIs it possible that Trump sees this mostly as a poker game and is just bluffing, and if the others cut him a deal, weвЂ™ll return to normal relatively soon?вЂќ
Yet Buthe cautioned: вЂњThese kind of things can spiral out of control fairly quicklyвЂќ as countries hammer each other with escalating retaliatory tariffs.
Speaking to reporters at the end of the summit, Trump repeated his assertion that other countries вЂ” including friendly allies вЂ” have outwitted U.S. negotiators in the past, capitalized on flawed agreements and run up big trade surpluses with the United States. The United States last year posted a trade gap in goods and services of $101 billion with the EU, $57 billion with Japan and $69 with Mexico. (The U.S. managed a $3 billion surplus with Canada.) Trump has condemned CanadaвЂ™s tariffs on imported dairy products and the EUвЂ™s tariffs on auto imports.
вЂњWeвЂ™re like the piggy bank that everybody is robbing,вЂќ Trump said. вЂњAnd itвЂ™s going to stop. Or weвЂ™ll stop trading with them.вЂќ
Ending trade with the other G-7 countries, the president asserted, would prove вЂњa very profitable answer, if we have to do it.вЂќ
Economists and trade analysts note that the rules of world trade rules arenвЂ™t as one-sided as the president argues. According to the World Bank, AmericaвЂ™s average tariff is 1.6 per cent, the same as the EUвЂ™s, only slightly higher than JapanвЂ™s 1.4 per cent and double CanadaвЂ™s 0.8 per cent. The rules of the World Trade Organization do allow CanadaвЂ™s punishing tariffs on dairy and the EUвЂ™s on autos. But in WTO negotiations, the United States bartered those and other things away for what it wanted, including strong protections for intellectual property, or IP.
As a result, Hunter said, America has become вЂњthe worldвЂ™s leading IP-based economy.вЂќ
During the talks in Quebec, Trump surprised G-7 leaders by proposing an end to all tariffs and trade barriers. The вЂњultimate thing,вЂќвЂ? he said, would be, вЂњyou go tariff-free, you go barrier-free, you go subsidy-free.вЂќ The president offered no roadmap to a tariff-free world, and analysts greeted the proposal with skepticism.
вЂњWhat a happy thought,вЂќ said Hunter, the trade lawyer. вЂњBut who would take this challenge seriously from the president who declared in his inaugural address that вЂ?protection will lead to great prosperityвЂ™ вЂњ?
Sen. Ben Sasse of Nebraska, a Nebraska Republican, said in a statement: вЂњIf the president is actually serious about leading the expansion of a G-7 no-tariff, free-trade agreement, thatвЂ™s tremendous, tremendous news вЂ” for the U.S. and for the free nations of the world. вЂ¦But the path to more trade begins with less whining on the global stage.вЂќ
Trump has failed so far to get the steel and aluminum tariffs to pressure Canada and Mexico into revamping the North American Free Trade Agreement to better favour the United States. The president has sought to revise NAFTA to encourage manufacturers to invest more in America and shift production from low-wage Mexico to the United States. The talks have floundered over several issues, including TrumpвЂ™s insistence on a clause that that would end NAFTA every five years unless all three countries agree to sustain it.
At the G-7 summit, TrumpвЂ™s spokeswoman, Sarah Huckabee Sanders, said the U.S. was вЂњclose to a dealвЂќ on NAFTA. On Saturday, Trump said again that he might pursue separate trade pacts with Canada and Mexico instead of a continuing with a three-country NAFTA deal.
But Trudeau later contradicted the president: вЂњWe will not, cannot sign a trade deal that expires every five years. That is not a free trade agreement.вЂќ
Afterward, Trump lashed out at Trudeau.
вЂњBased on JustinвЂ™s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!вЂќ the president tweeted.
Some members of Congress are beginning to push back against TrumpвЂ™s pugnacious approach. A bipartisan group of senators last week introduced legislation that would require Congress to approve any tariffs imposed in the name of national security вЂ” something the president can now do on his own.
вЂњPeople keep saying, вЂ?WeвЂ™re going to pull backвЂ™ вЂќ from a trade war, said Mary Lovely, a Syracuse University economist. вЂњUnless thereвЂ™s congressional intervention, itвЂ™s hard to see where this goes.вЂќ
вЂ” AP Writer Rob Gillies in La Malbaie, Quebec, contributed to this report