Trump escalates trade war, threatens European carmakers with stiff tariffs

Providence Journal

WASHINGTON - In his expanding war over global trade, President Donald Trump has aimed his harshest rhetoric at an unlikely target - the closest U.S. allies.

In Twitter posts while at his Mar-a-Lago resort in Florida on Saturday, Trump vowed to strike back at European leaders who said they would retaliate for his promised tariffs on aluminum and steel.

Bring it on, Trump warned.

“If the EU wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” he tweeted.

The country that escaped Trump’s tweeting ire was China, the very nation the president has wanted to hit hardest and the one that is largely responsible for flooding global markets with cheap steel. In return, China, which provides just 2 percent of U.S. steel imports, has been the most muted among leading trading partners in its response to Trump’s tariff threats, calling them misguided but not threatening a response.

Instead, the biggest burden of Trump’s new tariffs - 25 percent on steel and 10 percent on aluminum - would be borne by Canada, the largest trading partner with the United States.

Canada is the largest exporter of steel and aluminum to the United States, supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year. Yet in goods and services, the United States runs a trade surplus with Canada, which buys $48 billion worth of U.S. automobiles and $40 billion of machinery, in addition to agricultural products.

The steel and aluminum tariffs would also hit the United Kingdom, Germany, South Korea, Turkey and Japan, countries with which the United States has extremely close national security ties.

“The president is going to quickly find out that you can’t start a trade war with your allies and expect them to work with you on other issues,” said Jamie Fly, senior fellow at the German Marshall Fund. “The administration is squandering the little credibility they had with transatlantic partners at a time when they’re asking them to help fix the Iran deal, fight terrorism and increase defense spending. It will not work.”

And while Trump has promoted his new tariffs as part of an America First plan, any benefit in terms of jobs could be far outweighed by increased steel costs for U.S. automobiles, wind turbines, shale oil and gas drilling rigs and more - in many cases doing unintended harm to some of his own strongest domestic constituencies.

Trump’s tariffs “are inconsistent with the Administration’s goal of continuing the energy renaissance and building world class infrastructure,” American Petroleum Institute President Jack Gerard said in a statement. “The U.S. oil and natural gas industry, in particular, relies on specialty steel for many of its projects that most U.S. steelmakers don’t supply.”

Trade experts say the president has exaggerated and oversimplified the trade issues with Europe.

The United States already imposes a 2.5 percent tariff on the import of foreign cars and a 25 percent tariff on the import of foreign trucks and commercial vans. The European Union charges a 10 percent tariff on the import of U.S. cars.

The new tariffs and the president’s truculent rhetoric triggered angry responses among the countries closest to the United States and who are part of the World Trade Organization, which has for years helped reduce global tariffs.

“Allies should not be treated as scape goats, Mr. President,” wrote a German member of European Parliament, Reinhard Bütikofer, on Twitter. “Or is it your goal to make America lonely?”

Trump’s new attack on European automakers is mostly a direct threat at Germany, which exported $23 billion in cars to the United States in 2016, according to data aggregated by the Massachusetts Institute of Technology.

But large German automakers also have a sizable presence in the United States, with BMW employing thousands of workers in South Carolina and Volkswagen employing thousands more in Tennessee. Those manufacturers produce hundreds of thousands of cars in the United States each year, many of which are later exported to buyers in Asia and Europe.

Some European lawmakers appeared frustrated that Trump was targeting automakers that have large U.S. manufacturing operations.

“The EU will be forced to respond to US protectionism, but does not want tradewar!” wrote a Dutch member of the European Parliament, Marietje Schaake, on Twitter. “By the way, German carmakers alone made [845,000] cars in the US in 2016, the bulk (around 2/3) for export. The world is interconnected, not zero-sum.”

Canada’s leaders have said they would retaliate with tariffs on U.S. exports. On Friday, Canadian Prime Minister Justin Trudeau called Trump’s move “absolutely unacceptable,” using the same phrase as Foreign Minister Chrystia Freeland, who also threatened retaliatory measures if Canada isn’t exempted from the trade actions.

Likewise, European Commission President Jean-Claude Juncker said his bloc planned to hit back at the United States by imposing tariffs on targeting U.S. products such as bourbon from Kentucky - Senate Majority Leader Mitch McConnell’s home state - and Harley-Davidson motorcycles, which are partly manufactured in House Speaker Paul Ryan’s home state, Wisconsin.

On Friday, Trump wrote in another Twitter post that “trade wars are good, and easy to win.” He also promised to enact what he called “RECIPROCAL TAXES” on any country that has a tariff against any U.S. good or service.

Trump has been cheered on by some union leaders and a few close advisers within the White House. They believe U.S. policy has been too complacent for decades and allowed foreign countries to steal away U.S. jobs through unfair government subsidies and unbalanced tariff rules. Even if Trump’s approach shatters the status quo, they believe it is necessary.

“This whole idea that there’s a big downstream effect - it’s just part of the fake news that’s going to be put out to oppose these tariffs,” White House trade adviser Peter Navarro told Fox Business on Friday. “A penny for a six pack of beer - that’s worth it to put Americans back to work in two industries that we need.”

Trump has been particularly critical of situations in which the United States buys more goods and services from other countries than it sells to them. To that end, U.S. firms sold $53 billion in exports and imported $118 billion in goods from Germany last year, the kind of dynamic that he has often complained about.

Still the tariffs on steel and aluminum Trump unveiled last week are not crafted in a way that would target China, which last year sold $375 billion more goods and services in the United States than what it had ordered from America, according to the Commerce Department.

Chinese officials initially reacted to Trump’s tariff threats with strong language.

“What an extremely stupid move,” Li Xinchuang, vice secretary general of the China Iron and Steel Association, said Friday. “A desperate attempt by Trump to pander to his voters, which I think in fact runs counter to his ‘America First’ pledge.”

But beyond such rhetoric, Beijing has not threatened specific ways it would retaliate. And the overall tone has been more muted, analysts said. That may be because China exports so little steel and aluminum directly to the United States.

In contrast, Jean Simard, president of the Aluminum Association of Canada, said that his industry has been integrated into the U.S. economy for more than 50 years and that the Pentagon considers Canadian aluminum production a strategic military supply.

Simard said nine of 15 U.S. aluminum smelters have closed in the past four years, but he blames their demise on a surge in Chinese production and the fact that they face high power costs and have never been modernized.

Through access to cheap capital and electricity, and soaring domestic construction boom, China’s aluminum and steelmakers have grown sharply. China’s steelmakers have gone from producing 15 percent of the world’s crude steel in 2000 to producing 50 percent in 2016, according to the World Steel Association. China produces eight times as much as the second biggest producer, Japan. (The United States ranks fourth.)

Critics of Trump’s approach have often complained that tariffs and trade wars only drive up costs for domestic consumers, a move that would make German cars more expensive for U.S. consumers. Trump has also said these sorts of threats could incentivize foreign companies to expand their U.S. operations so they don’t have to pay the import fees.

Trump has been hammering the German auto industry since before taking office, incensed at their move to expand production in Mexico and threatening them with a 35 percent tariff on any cars brought into the United States.

One of Trump’s top advisers, Navarro, also holds the view that German automakers have stolen market share in the United States by importing cars but limiting the number of U.S. cars sold into their country, two people involved in White House deliberations said. Navarro’s stature within the White House has grown in recent weeks as Trump has turned toward advisers with protectionist views as he became frustrated that his trade agenda was floundering.

German officials have spent much of the past year trying to convince U.S. policymakers that they have a healthy trade relationship in the United States that benefits both countries. But Trump has a frosty relationship with German Chancellor Angela Merkel, and these personal relationships can spill into policy decisions at the White House.

White House officials have even discussed launching what’s known as a “301 investigation” into German automakers, a step that could preclude levying tariffs or other restrictions, a person familiar with discussions said.

“On trade policy, President Trump appears to be listening to advisers with views far outside mainstream economics,” said N. Gregory Mankiw, a Harvard economics professor who was chairman of President George W. Bush’s Council of Economic Advisers. “I don’t know any respected economist, conservative or liberal, who thinks this is the right approach to promoting prosperity.