Washington: Unleashing another barrage of punitive trade tariffs on thousands more Chinese products, President Donald Trump has shown he is willing to pursue hardline policies — no matter the cost.
And as Trump’s attacks on Germany at the NATO summit this week demonstrate, that aggressive strategy extends to allies as well as traditional rivals and to security as well as trade.
Stock markets over the last few days were recovering due to the view expressed by analysts, like JP Morgan and CFRA, that the initial salvos in the trade war were simply a “negotiating tactic.”
But Tuesday’s announcement that the administration would proceed with 10 per cent tariffs on another $200 billion (Dh734.5 billion) in Chinese goods as soon as September put an end to that more benign view, sending global markets tumbling on Wednesday.
That move comes on top of 25 per cent duties on $34 billion in annual imports from China, with another $16 billion on the way, as well as steep tariffs on steel and aluminium from around the world.
And Trump has threatened to hit another $200 billion in goods from China, and put new taxes on auto imports, in a move largely aimed at Germany.
China, Mexico, Canada and the European Union have responded to each US move with retaliation of their own. Oxford Economics analyst Adam Slater said the total share of global trade facing high tariffs could rise to five per cent.
Economists warn this poses a serious risk to the world economy, as it will depress investment and US growth and accelerate unemployment.
But with the economy growing by as much as four per cent in the second quarter, unemployment at the lowest in a generation, and corporate profits soaring as a result of massive US tax cuts, Trump may feel comfortable ignoring those fears.
Trump’s Afghanistan
With midterm elections coming in November, in which Trump’s Republican Party could lose seats in Congress, he may be more focused on the short-term, playing to his political base.
Instead of careful diplomacy, Trump has been “doubling down” on abrasive tactics, said foreign policy expert Heather Conley of the Centre for Strategic and International Studies.
And because he needs to show his supporters he is getting something out of it, he will “just keep going and see who blinks first,” she told AFP.
While Trump has thrown some verbal head fakes that have alternately horrified and comforted trading partners and US businesses, he has moved consistently towards a tougher stance as other governments failed to succumb to his threats.
“There is clearly a coherent world view behind this” policy, economist Adam Posen told AFP. “It’s a coherent world view, if paranoiac.”
But Posen, who heads the Peterson Institute for International Economics and formerly served on the Bank of England’s monetary policy board, warns that the administration is taking on a multi-front war without any clear means of producing a victory.
Trade wars are “even more costly for the aggressor than military aggression usually is and the effects of an attack are even less predictable and controllable than traditional war,” he warned.
“There is no scenario where inflicting economic pain on trading partners leads to a good outcome.”
That disregard for the certainty of self-inflicted wounds could make this confrontation Trump’s “economic Afghanistan — costly, open-ended, and fruitless,” Posen wrote in a recent op-ed.
Geopolitical gambit
Posen and others acknowledge that some of Trump’s points are valid: many governments have long complained about China’s lax protections for technology and even outright theft of intellectual property.
And Germany’s high trade surplus for years has been a sore point within the EU and in transatlantic relations.
Trump also accused Germany of not bearing its fair share of the NATO defence costs and of over reliance on Russia for its energy needs.
But Conley said, “there is no overarching strategy when it comes to what the US is trying to do, how to shepherd resources and allies to go get it.”
“He has an immediate need to do something now, but no sense of what are the cascading consequences.”
And his aggressive strategy may damage US diplomatic efforts. The White House needs Beijing to pressure North Korea to denuclearize and would have more leverage over China to change its policies if it joined forces with the EU and others.
Instead, “Trump is willing to raise the ante until China capitulates,” said Eswar Prasad, a professor of trade policy at Cornell University.
“With the Chinese government in no mood to cave in to US demands, it is difficult to envision an exit path from an escalating trade war that could end up inflicting some damage on both economies.
