Trump’s trade agenda on the verge of imploding

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Chinese and U.S. flags

President Donald Trump has repeatedly stressed his desire for an agreement that reins in China’s trade and intellectual property abuses. | Fred Dufour/AFP/Getty Images

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A long-sought deal with China appears to be falling apart this week.

President Donald Trump is heading toward his 2020 reelection campaign with virtually nothing to show for his big trade promises — except for angry farmers and a jittery stock market.

A long-sought deal with China appears to be falling apart this week, exposing businesses on both sides of the Pacific to more tariffs and steep losses for farmers. His new pact with Canada and Mexico is facing significant opposition in Congress even from Republicans, who are demanding that he lift steel and aluminum tariffs before they’ll vote on it. Deals with the European Union, Japan and Great Britain are also stalled by politics here and abroad.

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Trump’s failure to reach agreements with America’s trading partners could have a brutal impact on the economy and his reelection effort, even if his base likes his tough talk on China. By the time voters head to the polls in 2020, the prices of consumer goods could be skyrocketing. Farmers may be swamped with products they can’t sell abroad. And a bear market could be shrinking everyone’s retirement savings.

So far, Trump has only one trade agreement to his name after two years in office: A relatively minor agreement with South Korea that didn’t require approval from Congress.

What he has achieved are mostly unilateral actions: imposing tariffs on more than $50 billion of steel and aluminum imports from both allies and adversaries and tariffs on $250 billion of Chinese goods. He’s also threatening to raise tariffs on a remaining $325 billion of China’s exports.

“He’s a one-trick pony. He only knows how to do one thing: impose tariffs,” said Bill Reinsch, a trade expert at the Center for Strategic and International Studies.

The White House did not immediately respond to a request for comment, but did put out a press release Friday listing statements of support for Trump’s handling of the trade talks.

Reinsch, a former Commerce Department official, said he sees only a slight chance of Trump eking out a political victory in the China talks.

He’s more likely to come back with a deal that Democrats will be able to successfully portray as too weak and a cave to Beijing, Reinsch said.

Or he’ll walk away from the talks, leaving tariffs in place on potentially $575 billion worth of Chinese goods — everything from clothing and toys to Apple iPhones and computers.

In that scenario, China is expected to increase its already substantial retaliation on U.S. exports, such as farm goods, seafood and chemicals. Boeing aircraft, which Beijing has spared so far, could also face increased duties.

That would allow Democrats to accuse Trump of being a terrible trade negotiator who has inflicted pain on U.S. farmers and businesses without achieving his goal of forcing China to make trade reforms, Reinsch said.

Trump has repeatedly stressed his desire for an agreement that reins in China’s trade and intellectual property abuses. But he also seems content with simply imposing higher duties on all Chinese goods.

“I’m different than a lot of people. I happen to think that tariffs for our country are very powerful,” Trump said Thursday at a White House event. “You know, we’re the piggybank that everybody steals from, including China.”

In addition, Trump has gotten encouragement for his strong-arm approach to China from the Senate’s top Democrat. “Hang tough on China, President @realDonaldTrump,” Senate Minority Leader Chuck Schumer wrote on Twitter Sunday. “Don’t back down. Strength is the only way to win with China.”

Meanwhile, Trump’s update of the 25-year-old North American Free Trade Agreement is stuck in Congress, where even some Republicans are saying they won’t vote for it until Trump lifts tariffs on steel and aluminum that are hurting their constituents. Democrats are objecting to labor, environmental and pharmaceutical provisions, and have raised concerns about whether the pact can be enforced.

Democrats are warning Trump not to submit the new U.S.-Mexico-Canada Agreement to Congress for a vote until those concerns are resolved. That raises the possibility that Trump may follow through on a threat to withdraw from NAFTA to force Congress to decide between his new agreement or none at all.

But that’s a high-risk gamble that assumes voters would blame Democrats — and not Trump himself — for the economic turmoil caused by withdrawing from NAFTA without a new deal to replace it.

Senate Republicans are also balking at approving the new USMCA deal unless Trump removes tariffs he has imposed on steel and aluminum imports from Canada and Mexico.

“You’re never going to get the 51 votes [to approve the deal] through the United States Senate,” Senate Finance Committee Chairman Chuck Grassley (R-Iowa) said. “I wouldn’t mind if this could go ahead with the tariffs on, but it isn’t going to happen. So, I’m just speaking to the reality of it.”

But Trump has been reluctant to remove the steel and aluminum tariffs even though Canada and Mexico have retaliated against billions of dollars of U.S. farm exports. Administration officials have expressed a desire to replace the tariffs with quotas. But that still hasn’t happened nearly a year after the tariffs were imposed.

“Given how volatile he is, predicting his behavior can be folly, no?” said Tamara Kay, an associate professor of global affairs and sociology at the University of Notre Dame. “But [House Speaker Nancy] Pelosi and the Democrats don’t want to give him a win on USMCA before the election and she controls that completely. Plus even Republicans aren’t on board unless he gets rid of the current tariffs on Mexico and Canada. So it’s unlikely USMCA will be passed before the election.”

Others are less pessimistic and see a good chance that U.S. Trade Representative Robert Lighthizer will be able to satisfy Democrats enough to get the deal approved, even though he is currently resisting their pressure to reopen the pact to make changes.

“USMCA will be a bright spot for Trump, but I’m not sure how much he gets from it since the economic impact won’t be that great,” and it probably won’t be on the minds of most voters in November 2020 if it passes this fall, Reinsch said.

Trump’s three other big trade negotiations with the Japan, the EU and the U.K. are a mixed bag of possibilities, with the first offering the most promise in the near future.

Both Trump and Agriculture Secretary Sonny Perdue have raised the possibility of a quick deal on agriculture with Japan by the time the president visits that country at the end of this month to become the first foreign leader to meet the new emperor.

But before he makes that trip, Trump faces a May 18 deadline on whether to impose tariffs on imports of autos and auto parts from around the world, including Japan, in order to protect U.S. national security, as Commerce Secretary Wilbur Ross is believed to have recommended in confidential report that went to the White House in February.

However, White House chief economic adviser Larry Kudlow has indicated that Trump could use flexibility contained in the law to delay a decision on tariffs for a number of months. That would keep the duties a theoretical possibility hanging over U.S.-Japan trade talks without Trump having to actually impose them and roil relations.

Trump is eager to conclude an agricultural deal with Japan because U.S. farmers have begun losing sales to one of their biggest markets as a result of his decision to withdraw from the Trans-Pacific Partnership.

The pact, which includes Japan and agricultural exporters such as Australia, Canada and New Zealand, has gone into force without the United States putting U.S. farmers at a competitive disadvantage. That’s also true regarding a new Japan-EU trade agreement.

Over the longer run, most analysts believe it should be possible for Trump to strike a deal with Japan that provides farmers with the market access that they lost as a result of Trump’s decision not to push for congressional approval of TPP.

But persuading Japanese Prime Minister Shinzo Abe to make unilateral concessions on agriculture in time for Trump’s visit in late May is a tall order because of an election set for July for the upper house of that country’s parliament.

“Abe is very, very skittish about making any concessions on agriculture before the election, even if limited to TPP,” said Michael Smart, a managing director at Rock Creek Global Advisors, a trade policy advisory firm.

Abe is anxious for his ruling coalition to perform well in that election to accomplish a number goals, including reforming Japan’s pacifist post-World War II constitution to allow the country to create a stronger defense force.

Meanwhile, the EU continues to frustrate the Trump administration by refusing to include agriculture in talks on a proposed trade deal because of strong opposition from many EU members, particularly France.

That has annoyed many farm state lawmakers whose support is needed for congressional approval of any trade deals.

“Agricultural issues need to be addressed in these negotiations,” Grassley told reporters this past week. “We have longstanding issues with the European Union on products like poultry and biotechnology.”

The EU has also prepared a retaliation list aimed at more than $20 billion worth of U.S. goods, should Trump follow through on his threat to impose tariffs on auto imports.

Even if Trump holds off on his auto threat, a long-simmering dispute over the EU’s support for Airbus could boil over this summer if the Lighthizer’s office follows through on plans to retaliate on $11 billion worth of EU exports.

That case, which has gone through nearly 15 years of litigation at the World Trade Organization, could inflame U.S.-EU trade relations just as the economic community is in the midst of selecting a new leadership team which will take office in November.

“It’s kind of the opposite of ‘no-drama Obama’,” Reinsch said, comparing Trump to his low-key predecessor. “Every day it’s a crisis.”

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