Trump is on the Economic Warpath

The US unleashed a global tariff confrontation. Who will win and who will lose from these measures?

America incurs losses in all trade transactions, the steel and aluminum industries are destroyed, and the benefits of all this are extracted by both enemies and friends of Washington. Such a gloomy picture draws President of the United States Donald Trump, whose program “Let’s make America great again” implies the revival of the economic greatness of the States. As the head of the White House intends to rectify the situation by starting a trade war.

Trump worried about the negative trade balance of the US.

In 2017, the trade balance deficit grew by 12.1% to $ 566 billion (exports – $ 2.3 trillion, imports – $ 2.9 trillion). Of these, $ 375.2 billion accounted for China, $ 151.4 billion for the European Union, $ 71.1 billion for Mexico, $ 68.6 billion for Japan. According to Trump and his team, if the country imports more than it exports, this undermines economic growth, which means it prevents new jobs, additional income and tax revenues.

To get rid of the deficit, Trump promised before moving to the White House. In September 2016, his assistants Peter Navarro (future White House Trade Adviser) and Wilbur Ross (future Minister of Trade) prepared an economic policy plan that included: 1) tax cuts, 2) reduced energy production restrictions, 3) reduction of the trade deficit. The first two points from this plan have already been fulfilled, to the third Trump began just now.

The White House intends to change the trade balance with the help of duties and quotas

In accordance with section 201 of the Trade Act of 1974, the US president may impose temporary import restrictions, including by raising customs duties or imposing quotas in the event that increased volumes of imports cause or threaten to cause damage to domestic producers. These are standard measures for a policy of economic protectionism, the main supporter of which in the White House is Wilbur Ross – ex-entrepreneur and longtime partner of Trump, who made a fortune in buying and reselling bankrupt steel companies. Trump himself also repeatedly criticized “one-sided and dishonest” trade – primarily with China, the obsession with which has long been the object of jokes.

The introduction of new duties and quotas for goods goes in the wake of the program of import substitution (“Buy American and Hire Americans”), which the US President approved in the spring of 2017. Its purpose is to return to the US production and jobs that have leaked abroad in the era of globalization at the turn of the 1970s and 1980s.

The first blow was caused by the import of washing machines and solar panels.

At the end of January 2018, the US administration imposed a 30% duty on the import of solar batteries during the first year (after four years it should drop to 15%). The tariff for imported washing machines for the first 1.2 million pieces was 20%, for all the rest in excess of this amount – 50% during the first year. For the third year, the rate will decrease to 16 and 40%, respectively.

The consequences of these measures were felt not only by China and South Korea (the main exporters of solar batteries and washing machines), but also by American consumers – in connection with the new tariffs, the prices for goods crawled up.

The second blow fell on steel and aluminum.

The issue of restrictions on imports of aluminum and steel began to be worked out a year ago. In mid-February 2018, the US Ministry of Trade offered Trump a number of protectionist measures against foreign suppliers. On March 1, the president said that the duties would be 25% for steel and 10% for aluminum for all countries that supply this product to the United States. According to NBC, he took this decision in a fit of anger, not having listened to the advisers. Moreover, he threatened to impose a tax on cars from the European Union, if tariffs for American companies in Europe continue to grow.

The decree on imposing duties for all countries except Canada and Mexico, with which the negotiations on the Free Trade Agreement (NAFTA) are continuing, was signed on March 8 and entered into force on March 23. In addition, tariffs were not temporarily imposed on products from Australia, Argentina, Brazil, the Republic of Korea, as well as from the European Union.

May 31, Commerce Secretary Wilbur Ross said that since June 1, the US has introduced duties on steel and aluminum from the EU, Canada and Mexico. According to the official, they failed to reach “agreements to solve national security problems related to imports.”

This can lead to a trade war.

A trade war is a situation in which countries begin to use different barriers to protect the national economy: quotas, duties, non-tariff restrictions, etc. The US partners made it clear that they are ready to respond to Washington’s actions:

Head of the European Commission Jean-Claude Juncker expressed Trump’s protestts and promised to take European countermeasures against the United States in accordance with the rules of the World Trade Organization (WTO). German Foreign Minister Zigmar Gabriel demanded that the EU react decisively to new duties, and Austrian Chancellor Sebastian Kurtz – tough countermeasures. French President Emmanuel Macron said that all countries will lose their new duties. In response to US actions, the EU may restrict the import of Harley-Davidson motorcycles, Levi’s jeans and bourbon. Steel and aluminum duties will finally bury the project of creating a free trade zone between the EU and the US (TTIP). The Republic of Korea promised to take retaliatory measures, China stated that “it will not sit idly by,” the former prime minister of Singapore warned of the negative consequences for all countries “that depend on trade and open economies” • Britain expressed concern to Trump but promised to reach a mutually beneficial trade agreement with the United States after Brexit • Seven countries participating in the World Orgov Organization (WTO) – Russia, Venezuela, Turkey, Norway, Switzerland, India and Singapore – have criticized the US decision on tariffs. Consultations with the WTO in connection with the actions of the United States have been requested by the Russian Federation, China, the EU and India. 6 Allied tariffs will suffer most from the USA. Canada is the main exporter of steel and aluminum to the States, Mexico is the fourth largest supplier of steel. According to the estimates of the Peterson Institute for World Economy, as a result of the introduction of tariffs, they risk losing $ 3.2 billion and $ 1.0 billion, respectively, and the EU countries $ 2.6 billion. The US-exempt partners that have been exempt from duties will be the biggest winners. Imports from these countries will now be more profitable and cheaper, which means that American consumers will be reoriented to them. For Beijing, Trump’s chief economic rival, the effect of duties will not be so great. China ranks fourth in the supply of aluminum in the US and the tenth place in the import of steel – the US market is not the main market for the Chinese. In China, almost half of the world’s steel is produced, the US has repeatedly accused the Chinese of dumping and artificially maintaining excess capacity to produce it. According to Russian metallurgists, new tariffs will not hit either. However, as the press secretary of the Russian president Dmitry Peskov noted, this situation “causes anxiety and requires analysis.” According to Deputy Prime Minister Arkady Dvorkovich, “certain damage” from new duties is possible, so Moscow will learn how to react to them. In the list of the largest aluminum exporters in the US, Russia in 2017 occupied the third line, and steel – the ninth. In the United States, new tariffs are not satisfied with everything. Trump believes that trade wars are “good” and winning is easy. However, the policy of protectionism, implying great state involvement in trade regulation, is not shared by many of the Republican presidential associates. They, on the contrary, adhere to free-trade positions, that is, they stand for free trade with minimal state participation and low trade barriers.

According to Senator Lindsay Graham, only China, the world’s number one supplier of steel and aluminum, will win from the economic war of the United States and Europe. Speaker of the House of Representatives of the US Congress, Paul Ryan believes that the new duties could harm the tax reform and the growth of the US economy. Unity on the issue of duties is not even in the White House – against the initiatives of Wilbur Ross and Peter Navarro, for example, the Minister of Finance Stephen Mnuchin and the former director of the National Economic Council at the White House, Gary Kon. The latter resigned immediately after the introduction of duties on imports of steel and aluminum. The only winners from this situation were only the profile companies (United States Steel and Century Aluminum), whose shares rose on the statements of the White House. At the same time, the key stock indices in the US declined, resulting in the world’s richest people lost $ 128 billion overnight. The largest US steel and aluminum consumers (Ford, Boeing, Campbell, etc.) could also suffer because of rising prices raw materials. The United States and China were in a state of full-scale trade war. Tariffs on steel and aluminum are only part of the Trump trade war. On July 6, the US imposed duties on Chinese goods valued at $ 34 billion. This category included cars, electronics, industrial equipment and other sensitive items for Chinese exports. This measure was adopted “in the light of the theft of intellectual property and technology by China, as well as other unfair trade practices.” China responded in a mirror manner, introducing the same day 25% duty on goods from the United States for a total of about $ 34 billion. As stated in the published on Friday, a statement by the Ministry of Commerce of China, the introduction of new duties on Chinese imports of the United States “began the biggest trade war in history”.