• Trump’s tariffs could trigger a trade war


    It is hard to imagine a US President being unaware of the serious ramifications a major tariff move might have on the world economy, but President Donald Trump seems to have made an off–the–cuff decision to slap tariffs on two major commodities—steel and aluminium. The global economy, which has just been inching its way out of the doldrums, will definitely not escape getting grazed in the expected trade crossfire.

    Trump on Thursday ordered the imposition of a 25-percent tariff on steel and a 10-percent tariff on aluminium, as part of his “America First” policy, aimed at cementing his hold on America’s working-class voters.

    The decision was immediately met with global indignation, followed by fears of a trade war, with major US trading partners China, Japan and Germany likely to retaliate.

    In a letter to Trump, Kosei Shindo, chairman of the Japan Iron and Steel Federation, said: “It is our view that the tariff increase … is a market-distorting measure, which would cause serious harmful effects, not only on steel exports from Japan, but also on steel trade worldwide.”

    “It is likely that US actions … will create a negative chain reaction, affecting not only steel, but also other products considered to have national security implications, with other countries taking similar actions under similar pretenses,” Shindo added.

    The European Union (EU) has threatened to retaliate, beginning with big US brands. “We will not sit idly when European industry and jobs are threatened,” European Commission chief Jean-Claude Juncker said in Hamburg, Germany.

    Juncker’s spokesperson later said on Twitter the EU was preparing to impose import duties on US products, including Harley-Davidson motorcycles, Bourbon and Levi’s jeans.

    But the impact of the steel and aluminium tariffs will not be confined to US trading partners.

    Smaller trading nations like the Philippines will surely be caught up in a trade war, and will have to contend with the fact that trade growth will be sluggish and suppressed if that frightful scenario materializes.

    Trump has effectively abandoned the US leadership position in favor of free trade, which peaked during the George W. Bush administration amid a push for a new round of global trade negotiations.

    Moreover, Trump walked away from years of global consensus – as enunciated by various fora such as the G20, the Asia-Pacific Economic Cooperation and the Association of Southeast Asian Nations – not to raise trade barriers to help kickstart global economic activity.

    Trump, of course, ran and won on a protectionist economic platform (drawn up by a fringe, anti-China economist, Peter Navarro), and his position on trade was well known before he took office.

    To prove this, Trump, in one of his first acts in the Oval Office, took the US out of the Trans-Pacific Partnership (TPP) free-trade agreement that was championed by his predecessor, Barack Obama.

    The tariff cuts, however, are far more provocative and will surely upend the global trade regime; the TPP in contrast can and will move forward even in the absence of the US in the mix.

    Trump has to realize that economic policymaking is serious business with global implications far weightier than his ultimate objective of seeking reelection by courting the favor of America’s moribund rust belt.


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