Trump has let the world know that the global marketplace is unfair, and America won’t take it anymore! He has a point. The Trump Tariff started with China, the “King of Counterfeits“. China is also the biggest intellectual property thief. 87% of America’s counterfeits come from China. China steals $50 billion of intellectual property every year, often from firms that outsource to China. Yes, Trump certainly has a point when he stands up to China. But instead of targeting key industries, Trump is tariffing everything. And everyone. Enemies and allies alike. Shocking? Well, yes. Especially if you’re Canada!
Our closest economic allies are reeling from being hit with billions in tariffs. Instead of a period of discussion, the Trump Tariff lept from idea to implementation without any of that diplomacy… uhhh… stuff? You need the (often slow) process before a tariff, to avoid unexpected consequences AND a trade war. Let’s take a peek at the Trump Tariff and see what we can expect.
Rationale: Before you levy a tariff, you need research to determine the “who, what, and how much” of the tariff. Starting with steel and aluminum was a surprise. Steel has been a traditional target of tariff discussions… back in the 1970’s. That’s when steel and aluminum were big American industries. A few types of high tech steel are critical to the military, but they aren’t imported. Imported strategic military materials are usually illegal or banned in military supply contracts.
Trump, however, used “strategic materials” as justification to unilaterally apply a tariff. Once steel was chosen for the tariff, President Trump found out that China is the world’s largest steel exporter, but only supplies 2% of America’s imported steel. Even Germany supplies 4% of our steel. Despite this, before Trump’s election America already had more antidumping duties against China than any other nation, other than Canada.
By the way, why tariff Canada? Probably because as Trump was educated about the steel trade, he learned that America’s top source of imported steel was Canada (14%). Without a Canadian tariff, he could expect a humiliating attack from the media. The tariff might have stung less if Trump let Canada… one of America’s closest trading partners… got advance notice. Instead, Trump tweeted the tariff to the world, infuriating Canada. A few heated exchanges later, Trump tariffed Canadian maple syrup. Due to the magic of tariffs, maple syrup has been transformed into a strategic war material.
Tradition: Democrats, not Republicans, are known for tariffs. Tariffs are usually used to protect the workforce. Republicans, leaning towards capitalism, are against tariffs because they interfere with free markets, an important pillar of capitalism. Republicans say governement should be small, and not interfere with business, which can manage its own affairs. Democrats, which lean towards socialism, are for tariffs because they support worker rights, a pillar of social democracy. Besides, they believe that some issues that are too sophisticated for business to comprehend and require the interpretation of governement bureaucrats.
The Trump Tariff completely rewrites these roles, with Republicans supporting the biggest tariff in American history, while opposing hundreds of business groups that are against the Trump Tariff. Even the Koch brothers, founders of the Tea Party, are against the tariff. Trump could ask the White House Strategic and Policy Forum or the White House Manufacturing Jobs Initiative council for their support… except Trump terminated both groups last year when he disagreed with their advice to moderate his comments on the protests in Charlottesville.
Legality: The Trump Tariff is very unconventional because the President unilaterally enacted it. Normally, that’s the job of Congress. President Trump does have the power to tariff in a national emergency, war, etc., but specific definitions of these exceptions were never defined. Since Congress has not passed war legislation, America is not at war. But we have been dropping bombing Syria. Does Syria constitute a war or a national emergency? Even if Syria qualifies as a war how would it justify a tariff against China? The President has the right to levy tariffs in a war but no one ever defined WHO he can tariff in a war. Details like this are vital to what is and isn’t legal.
Globalization: Canada, and the world, was taken aback by the Trump Tariff. As Trump learns more about global trade, he keeps finding new tariffs for old friends. Trump calls this overdue justice, but is outraged when other nations tariff American. What began as a few billion dollars of tariffs could hit $250 billion, with just China. But tariffs are tricky.
A tariff against steel or wheat is easy to implement. Wheat is wheat. A tariff against German cars is more complex. Will a German car tariff make consumers buy American cars? Or do consumers want to buy a specific model of car? What if a Mercedes has more airbags or better self-driving features? Another car may not do. Then, the tariff punishes consumers with higher costs or makes consumers hold off on buying any car. Which doesn’t help the American car industry. Complicated? Let’s step it up a notch.
America tariff experience is now very old. From the 1970’s and earlier. Back then, foreign products were… foreign. French cheese was French and Chinese products were Chinese. Today, however, China manufactures Chinese brands AND American brands (and smartphones from North Korea, electronics from Japan, faucets from Germany, and so on). Much of the $500 billion of “imports” from China are American goods that were manufactured offshore. Trump believes that this will force American companies to move facilities and jobs back to America. Maybe not.
Harley Davidson is a legendary American brand. Their motorcycles sell well in the US and in Europe. But between the Trump Tariff and European counter Tariffs, Harley expects to lose $100 million annually. The only way to avoid the tariffs is to move the production of motorcycles sold in Europe… to Europe. That means closing American facilites and moving jobs to Europe. Harley has announced that it will immediately start the move to Europe. Trump announced that Harley will be “taxed like never before”. Punishing business for not agreeing with governement policy? What strange bedfellows globalization makes!
The World Responds: When we tariff a nation, it tariffs us back. If President Trump had maintained a focus on just China, much of the developed world (China’s biggest markets) might support America in some way. By tariffing every ally, the opportunity for support has faded away. The tariff started with a few billion in Chinese goods, but Trump then escalated to $50 billion. As China (and other nations) match the Trump Tariff dollar for dollar, Trump continues to escalate and has committed to raising the tariff on China to $500 billion. Soon.
Since China only exports $500 billion of goods to America, that is the last round of escalations for China. Will Trump then focus on increase tariffs on other nations? Dramatic changes in the import/export balance may lead more firms to follow Harley Davidson to Europe or China. If America goods become less desirable, goods from other nations may permanently take over America’s former global market share. .
Summing It Up: We’re in unknown territory. European leaders are very unhappy with the unilateral and unannounced nature of the Trump Tariff. In a world of social media and 24 by 7 news coverage, Trump is already very famous in Europe, but not in a good way. According to the Pew Research Center, there is a much less favorable opinion of Trump than Obama. Nations with the closest economic ties with the US (Europe, Latin America, Australia, Canada) hold a particularly low opinion of Trump. Russia, however, likes Trump. They really, really like him.
As the Trump Tariff hits the rest of the world, American wheat… already challenged by water shortages and climate change… may be replaced by from Russian and Ukraine. Chinese tariffs could devastate American agriculture, especially in states like North Carolina that firmly backed Trump. What a coincidence!
Just one of the bizarre implications of the Trump Tariff is that China (a HUGE buyer of US pork) will heavily tariff pork products. However, just last year China bought the world’s largest pork producer, Smithfield, which is headquartered in North Carolina. China’spurchase of Smithfield was strategic. They don’t just want Smithfield pork, they want Smithfield knowhow. China wants to revolutionize pork production, by applying cutting edge technology from Smithfield. Yet, China’s tariff on American pork will cause a lot of pain for Smithfield. If China chooses to be vindictive, they might choose to lay off some of their 50,000 employees. THAT would send a message to Washington.