WASHINGTON (Pakistan Point News / Sputnik - 21st December, 2018) President Donald Trump waged an aggressive economic war in 2018 against friend and foe alike, wielding tariffs and rhetoric that hindered global economic growth but failed to reduce US trade deficits.
The Trump administration's attack on international commerce was multi-pronged - a combination of tariffs, threatening rhetoric, and persistent criticism of multilateral institutions and mechanisms like the World Trade Organization, allegedly in an effort to right US trade imbalances especially with China and allies in North America and the EU.
In a steady stream of statements throughout the year, most via Twitter, the former New York real estate tycoon consistently expressed his commitment to aggressive tariff policies as both a job creator and negotiating tactic. He vowed to tear up existing and longstanding free trade agreements while forcing renegotiation on others to secure more favorable terms.
The US president was delivering on a core campaign promise to reduce trade deficits. Trump also used the issue as a tool to persuade working class voters to back Republican candidates in November's midterm congressional elections.
"Tariffs will make our country much richer than it is today. Only fools would disagree," Trump said in a Twitter message on August 4. "We are using them to negotiate fair trade deals and, if countries are still unwilling to negotiate, they will pay us vast sums of money in the form of Tariffs. We win either way."
In March, Trump took one of the first major steps in launching his trade war against the world by announcing the United States would impose 10 percent tariffs on aluminum imports and a 25 percent penalty on steel imports, while temporarily exempting some allies. Argentina and Australia within the next few months were able to secure exemptions.
On June 1, the United States imposed the metal tariffs on imports from the European Union, Canada and Mexico, which were initially exempt from the extra tax.
In imposing the tariffs, the Trump administration invoked Section 232 of the 1962 Trade Expansion Act which gives the executive branch the power to conduct probes into the impact of imports on US industries.
The Commerce Department in a report released in February said that it found the quantities and circumstances of steel and aluminum imports "threaten to impair... [US] national security."
Tariff remedies were necessary, the report concluded, to increase domestic steel production from 73 percent of capacity to an 80 percent operating rate while increasing production of aluminum from 48 percent to an average capacity of 80 percent - levels that would provide both industries with "long-term viability."
The Trump administration also targeted the World Trade Organization (WTO) throughout 2018 as part of its strategy. US Ambassador Dennis Shea told a Trade Policy Review session at WTO headquarters in Geneva on December 18 that the United States wants to improve a broken institution.
"The United States is committed to working with like-minded Members to address our concerns with the functioning of the WTO. Reforms are necessary for the continued viability of the institution," Shea said. "The United States will be at the forefront of these efforts."
Even while criticizing institutions, however, US officials took every opportunity to underscore who Washington felt was the biggest threat.
"The WTO is not well equipped to handle the fundamental challenge posed by China, which continues to embrace a state-led, mercantilist approach to the economy and trade," Shea warned.
The US crusade against China included a relentless levying of claims accusing China of stealing intellectual property, manipulating Currency, price dumping, and even election meddling.
US tensions with Beijing rose even higher in May when the Trump administration said it would levy extra taxes on $50 billion worth of Chinese goods, invoking Section 301 of the 1974 Trade Act which allows presidents to impose restrictions on foreign countries for alleged unfair trade practices.
As of late December, the United States had slapped tariffs on approximately $250 billion worth of Chinese imports and has threatened to put penalties on another $267 billion more. To put this in perspective, the United States imports more than $500 billion worth of products from China annually.
The first wave of measures went into effect in July which included tariffs on $34 billion worth of goods from China covering high-tech industries such as aerospace, communications technology, robotics, and automobiles. The next $16 billion in products tariffed the following month included other industrial items such as auto and railway parts, motorcycles, fertilizers, among others product categories.
The $200 billion in products hit with tariffs that took effect in September covered a wide range of items including furniture, luggage, food, tobacco, wood products, and construction materials, to name just a few.
Once Trump launched the trade war, Washington and Beijing imposed several rounds of tit-for-tat tariffs, while bilateral trade consultations failed to resolve the situation. Beijing, for its part, has targeted some $110 billion worth of US goods in key sectors such as agriculture. China has also threatened to levy tariffs on US vehicles and auto parts and warned that it could take action against US businesses operating in China.
The White House became concerned with Chinese retaliatory tariffs ahead of the midterms. In September, Trump accused Beijing of trying to influence US elections by imposing tariffs that hurt members of his political base, including farmers, ranchers and industrial workers.
Some US lawmakers argued that even if the tariffs were justified, the Trump administration's process for administering them was flawed. As Trump unveiled plans to impose 25 percent tariffs on all steel imports the Commerce Department also launched an exemption process.
Yet US Senator Elizabeth Warren said her staff analyzed a sample of 900 of more than 15,000 rulings which revealed that as of October 22, 81 percent of exemptions had gone to foreign-headquartered companies. In addition, Chinese-owned companies received 27 percent of all waiver approvals.
Near the end of 2018, however, the two sides made some progress towards a settlement. On December 1, during a meeting on the sidelines of the G20 summit in the Argentine capital of Buenos Aires, Trump and Chinese President Xi Jinping reached a truce and agreed to de-escalate the trade war.
Trump agreed to a 90-day suspension on plans to escalate tariffs on $200 billion worth of Chinese products. However, the president warned that if he could not reach a fair trade deal with Beijing within three months he would go forward with the measures.
On December 14, Chinese Commerce Ministry Gao Feng said Beijing and Washington have managed to agree to eliminate some differences regarding the automotive, agricultural, and energy trade sectors. The Chinese Finance Ministry said in a statement that Beijing will suspend 25 percent tariffs on 144 US vehicle and auto part items and 5 percent tariffs on 67 auto items between January 1, 2019 and March 31, 2019.
The US president, later that same day, expressed confidence that a deal was in sight and that his crusade, including the tactics used, were yielding results.
"China just announced that their economy is growing much slower than anticipated because of our Trade War with them," Trump said in a Twitter message. "They have just suspended US Tariff Hikes. US is doing very well. China wants to make a big and very comprehensive deal. It could happen, and rather soon!"
The EU responded to Trump's initial round of tariffs, which affected $7.3 billion in metal imports from Europe, by imposing duties on $3.3 billion worth of US products - including steel, agricultural products, food staples, vessels, and clothing.
In addition, the EU along with Canada filed complaints against the Trump administration at the WTO regarding the tariffs.
At the beginning of June, ahead of the G7 Summit in Quebec, Trump slammed his European colleagues over the situation, accusing them of hurting American workers and farmers through unfair trade practices, citing a $150 billion deficit with the EU.
Independent Institute Center for Peace and Freedom Director Ivan Eland told Sputnik that Washington was likely to lose the WTO case given the dubious claims used to justify imposing the economic penalties on trading partners.
"The European Union has a reasonably good chance to win the WTO dispute, because the United States' 'national security' rationale for the tariffs is nonsense," Eland said. "Trump is using the national security excuse to thinly disguise raw protectionism."
Trump and some EU leaders took superficial steps to defuse trade tensions. In July, President of the European Commission Jean-Claude Juncker and Trump during a meeting agreed to avoid new tariffs and vowed to explore negotiating a trans-Atlantic trade arrangement.
However, in November, Trade Commissioner Cecilia Malmstrom told reporters that the situation had not changed and insisted that the EU refused to put the issue of agriculture on the negotiating table.
"They [tariffs] are still there. We are raising it every time we speak with the Americans. We still think they are deeply unjustified," Malmstrom said when asked whether the issue of the US steel tariffs was still present.
Trump since he was a presidential candidate repeatedly criticized the North American Free Trade Agreement (NAFTA), which originally went into effect in 1994, as being unfair to the United States, claiming it cost millions of US jobs.
Trump waged a war of words against Canadian Prime Minister Justin Trudeau as part of the trade battle amid the ongoing talks. In May, media reported that Trump and Trudeau held a confrontational phone discussion over the recent tariffs levied by the United States. About a month later, Trump took aim at Trudeau on Twitter over unfair trade practices.
"Trudeau is being so indignant, bringing up the relationship that the US and Canada had over the many years and all sorts of other things... but he doesn't bring up the fact that they charge us up to 300% on dairy - hurting our Farmers, killing our Agriculture!" Trump said in a post on June 7.
However, after long hard negotiations between trade representatives the three neighbors finally reached a deal in principle by October of 2018. At the G20 Summit, on November 30, Trump, Canadian Prime Minister Justin Trudeau and Mexican President Pena Nieto signed the new US-Mexico-Canada Agreement (USMCA), which would replace NAFTA.
The USMCA covers such areas as tariffs, manufacturing origin, intellectual property rights, labor standards, and protection of the environment.
The new deal requires cars and trucks to have 75 percent of their components made in the United States, Mexico or Canada to escape being hit with tariffs. The 1994 NAFTA deal required only 62.5 percent.
Under the USMCA, 40 to 45 percent of all auto parts must be made in the three countries by workers paid at least $16 per hour by 2023. But negotiators acknowledged that huge uncertainties remain about how, if at all, this provision can be effectively administered.
The US National Milk Producers Federation (NMPF) and the US Dairy Export Council (USDEC) praised the new agreement for scrapping Canada's controversial Class 7 dairy pricing policy, opening the way for greater access for US products.
Their Canadian counterparts, of course, were not as delighted. The Dairy Farmers of Canada (DFC) in a statement released after the preliminary agreement was reached in October, accused Ottawa of using 220,000 Canadian families as a "bargaining chip" and slammed Trudeau's government for following Trump's orders.
"This deal not only gives more access to the Canadian dairy market, while limiting our ability to produce and export home-grown dairy products; this deal lets the Americans dictate our dairy policies," the release said.
In September, Trump and Japanese Prime Minister Shinzo Abe agreed to negotiate a new bilateral free trade agreement as part of President Donald Trump's bid to reshape American trade policy.
Trump told reporters that Tokyo did not bother negotiating with the Obama administration because the Japanese felt they would face "no retribution."
Trump also said that Tokyo would have a "big problem" if it failed to reach a trade accord with the United States.
Trump has taken a more aggressive line towards South Korea. This year he concluded a revised agreement in a bid to narrow the $27 billion trade deficit the US ran with Seoul in 2016.
South Korea accepted a cut of 30 percent in its steel exports to the United States and in return was rewarded with an exemption from the sweeping steel and aluminum sanctions that so outraged the EU and China.
Trade relations also deteriorated with Moscow. Russia on August 5 introduced new import duties on a number of US goods in response to earlier US steel and aluminum tariffs.
In November, the WTO established an arbitration panel in a dispute between Russia and the United States over additional duties on steel and aluminum, the press service of the Russian Ministry of Economic Development said.
The WTO Dispute Settlement Body (DSB) at a meeting on December 18 decided, based on a second US request, to establish an arbitration panel on the dispute with Russia on additional import duties on certain goods from the United States, a source familiar with the talks told Sputnik.
Earlier in December, Russian Foreign Minister Sergey Lavrov told the Kazakh Khabar news agency that Moscow hopes for the global trade system to be open but US policies do not contribute to transparent markets.
Lavrov concluded by expressing confidence that the US administration would understand eventually the importance "to work collectively and follow the rules which had been developed for decades for the World Trade Organization."
Trump's policies and rhetoric on trade was a major contributing factor to huge losses in the US stock markets. On March 22, the US Dow Jones Industrial Average stock market index closed down more than 720 points, marking the fifth-worst single-day point loss in the country's history, driven by fears of a trade war after President Donald Trump signed a measure to impose tariffs on China.
Barron's financial news referred to the drop as a "tariff sell-off." According to the Dow Jones company's MarketWatch, losses in Chinese tech stocks outpaced their US counterparts after Trump announced his tariffs.
On December 5, the Dow shed nearly 800 points on renewed concerns over the trade dispute with China and indications of a possible looming economic recession.
The wave of selling erased the gains of the previous day, when markets rallied on news that the United States and China had reached a truce in their ongoing tariff dispute. But investors appeared to lose confidence that the trade dispute was resolved after White House officials made contradictory statements about what the parties had agreed to.
The US central bank, the Federal Reserve, several times reported that US businesses were concerned about the impact tariffs were having on the competitive landscape, especially due to Chinese retaliatory measures and the rising cost of key raw materials like metals.
A poll conducted by the National Association for business Economics (NABE) showed in August 2018 that more than 90 percent of economists believe tariffs will have a negative effect on the US economy. A report prepared for the National Retail Federation revealed on August 24 that the administration's proposed tariffs on furniture and travel goods imported from China will cost US consumers up to $5.8 billion.
Meanwhile, despite Trump's tariff campaign to even the playing field, the US monthly deficit in goods and services with the world reached its highest level in a decade in October 2018 while the deficit with China hit a record high.
US official figures showed the deficit grew more than 11 percent through October compared with the same month in 2017.
If the deficit continues to grow on that projection, by the end of 2018 it will have topped $600 billion for the first time in history, 20 percent higher than when Trump took office nearly two years before.
One issue that the Trump trade strategy failed to effectively take into account has been the steady strengthening of the US dollar. While tariffs on foreign imports may have boosted some US industries, the rising value of the Dollar could offset these gain because it makes American products more expensive overseas, as noted by the Coalition for a Prosperous America (CPA), a pro-protectionism lobbying group.
"As part of a smart 'America First' agenda, Trump has prioritized strong trade action, including both tariffs and renegotiated trade agreements," CPA CEO Michael Stumo said in a press release in October. "But the dollar's persistent rise is now hurting the effectiveness of these strategies."
Meanwhile, with respect to effects abroad, institutions like the International Monetary Fund (IMF) and World Bank have warned that Trump's policies and rhetoric have had a negative impact on prospects for global economic growth.
In July, IMF Managing Director Christine Lagarde said the recent series of US trade tariffs could reduce the world's gross domestic product by 0.5 percent. Later in the year, the IMF chief reiterated her concerns over a full-blown trade war and permanent restrictions.
"A key issue is that rhetoric is morphing into a new reality of actual trade barriers," Lagarde said during a speech on October 1 ahead of annual meetings in Indonesia. "This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise."
According to a report issued the following week, the IMF revised the global economic forecast for 2019 downward by 0.2 to 3.7 percent citing recently announced trade measures, including US tariffs on China.
In November, World Bank President Jim Yong Kim in a speech at the opening of the first China International Import Expo (CIIE) in Shanghai said the escalation of tariffs will not only negatively affect global growth but will slow down the pace of poverty reduction.
Given the counterproductive impact on both the US and global economies, Trump's approach has been criticized by many. However, some still see a method to madness.
Eurasian Business Coalition Vice President Ralph Winnie told Sputnik that Trump at heart is a deal maker and a negotiator who veers from threats to compromises, sowing confusion in global capitals, for a reason.
"He has created an atmosphere of uncertainty that will bring people to the negotiating table," Winnie said.
Yet the Trump administration's disdain for multilateral institutions and inability to grasp the ramifications of the maverick tariff war bodes ill for the future, especially for the US worker who will lose the most in the end, University of Pittsburgh Professor of International Affairs Michael Brenner told Sputnik.
"The logic of international commerce is well established and the implications of unilateralism [are] obviously deleterious," Brenner explained. "It is not evident that the Trump people understand these elementary facts of contemporary life."
