President Trump appears prepared to unravel 70 years of painstaking effort that the United States has led to build an international system of trade based on mutually accepted rules and principles.
Ever since an agreement on trade emerged in 1947 from the ashes of World War II, presidents of both parties have pushed this system as a way to strengthen alliances and promote the expansion of democracy and prosperity in Europe and Asia.
But with Trump’s decision last week to enact aluminum and steel tariffs against U.S. allies in Europe and North America, he is subverting previously agreed-upon trade pacts. The result is a brewing trade war with Canada, Mexico and Europe, which are expressing shock and bitter frustration while enacting tariffs of their own on a bevy of American products.
The measures announced last week went beyond Trump’s previous actions, such as pulling out of the Trans-Pacific Partnership, a recently forged trade agreement among 12 nations, and his efforts to renegotiate the North American Free Trade Agreement with Mexico and Canada.
Now, he has imposed restrictions on aluminum and steel imports in the name of national security, even though almost all trade and national security analysts agree that it strains credulity to say it is risky to source metals from allies with whom the United States routinely shares sensitive intelligence information.
Veterans of trade policy worry that tensions will further escalate, putting existing trade agreements in peril and the future of the World Trade Organization, the group that the United States helped establish in 1995 to adjudicate the rules of global trade, in doubt.
“Trump’s actions create a feeling of chaos and lawlessness. America is no longer abiding by basic due process and commitments made to other nations,” said Jennifer Hillman, a former commissioner at the U.S. International Trade Commission.
Trump administration officials say the reaction from the rest of the world has been overblown. They say they are still eager to negotiate and they are just trying to stop a flood of cheap Chinese steel on the world market that has harmed American jobs and industry. Commerce Secretary Wilbur Ross is heading a delegation in Beijing this weekend to “discuss rebalancing” trade relations between China and the United States.
Trump has argued that he’s trying to get other countries, especially China, to play by the rules, and the president’s advisers say trade agreements negotiated in the 1990s are past due for an update that better reflects the current realities of the global economy.
“When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War!” the president tweeted Saturday, referring to the U.S. trade deficit in goods. (The overall trade deficit, which includes services, was $566 billion last year.) “The U.S. has been ripped off by other countries for years on Trade, time to get smart!” the tweet continued.
“We are the ones trying to save the rules-based trading system,” a senior administration official, who spoke on the condition of anonymity because they were not authorized to speak publicly, said in an interview Saturday. “Europe and Canada are cheating. They are giving subsidies to some of their industries and putting U.S. companies at an unfair disadvantage.”
The sudden U.S. hostility toward existing trade agreements comes at a fragile time. While the world economy has been chugging along, multiple countries are recoiling from the trend toward economic integration that has been continuing for decades.
Britain is in the process of exiting the European Union. With newly elected populists in power, Italy is dancing close to leaving the euro currency zone. And a leading candidate to be Mexico’s next president, Andrés Manuel López Obrador, is also a trade skeptic and may take an even more confrontational approach with Trump than the current president, Enrique Peña Nieto.
“The door is open to the system unraveling,” said Douglas Irwin, an economics professor at Dartmouth and author of “Clashing over Commerce: A History of U.S. Trade Policy.”
One reason for worry about things spinning out of control, trade experts say, is Trump’s apparent belief that he can use threats to coax concessions out of allies. While South Korea, Brazil and Australia have been more acquiescent, most of the world’s major powers have rejected his demands.
For example, last week Canadian Prime Minister Justin Trudeau revealed that he had rebuffed a request by Vice President Pence to resolve NAFTA negotiations with an agreement to revisit the terms of the pact every five years. That shattered hopes of Trump securing victory any time soon on NAFTA, and led the president to declare on Friday that he is considering abandoning the agreement altogether.
In the case of steel and aluminum, U.S. allies have refused to agree to quotas limiting their metals exports, thus forcing Trump to enact tariffs. Trump is acting more aggressively in part because a stable of cautious advisers has fallen away in recent months, and he has been emboldened by hard-line trade skeptics who have cast aside warnings about the economic pandemonium that could result from his confrontational behavior.
As a result, the United Kingdom, France, Germany, Mexico, Canada, Turkey and Japan have either begun or announced plans to launch countermeasures. They are also forging ahead with their own trade agreements without the United States, a situation that could put American companies at a disadvantage for years to come.
Numerous U.S. firms — and entire industries — are worried they could be caught in the crossfire of this escalating economic spat. Actions taken to fortify the steel industry could backfire by hurting other sectors dependent on inexpensive raw materials — possibly causing more job losses than jobs saved, economists say. And prices of many American goods — from cars to beer cans — could rise.
The cost of steel and aluminum tariffs for the average American family will be $210, estimates Mark Zandi, chief economist at Moody’s Analytics.
“This is basically a welfare scheme. You are taxing everyone in America to help a small number of people in the steel industry,” said Bart Oosterveld, director of the global business and economics program at the Atlantic Council.
Not every economist agrees, however, that the effect of the tariffs will be substantial.
“I don’t see a big risk to the global trading system. It’s not going to blow up the system,” said Peter Morici, a former chief economist at the U.S. International Trade Commission. “Trump wanted to send the Europeans a message on trade to get more concessions.”
Indeed, Trump’s tariffs so far are on a relatively small scale, hitting about $41 billion worth of steel and aluminum imports. But he has threatened to go after European-made autos next.
The bigger issue is a political one: the aggressive imposition of tariffs on an unprecedentedly wide variety of U.S. allies, and the use of national security as the justification for doing it.
As a result, America’s longtime partners are starting to view Trump’s move as a sea change in U.S. policy. Trudeau called the action “totally unacceptable.”
Cecilia Malmström, the European Union’s trade commissioner, said, “I would not use the term ‘trade war’ because it has a psychological effect.” But she added: “The U.S. is playing a dangerous game here.”
“This will have an economic bite, and it will last a long time,” said Adam Posen, president of the Peterson Institute for International Economics. “It will be hard to establish trust in the U.S. again, and all the uncertainty will drive down investment and productivity.”
Under WTO rules, the national security tariff is supposed to be wielded only in times of war or when there is a direct threat to a country. Trump’s team is arguing that any nation should be able to determine on its own when its national security is at risk and impose tariffs when it wants, a major shift that opens the door to any country erecting trade barriers whenever it wants.
“To me, it’s unequivocal that these U.S. tariffs are a violation of America’s WTO obligations,” said Hillman, a Georgetown Law professor. “Under the WTO, the U.S. committed to not discriminating among members of the WTO, so the U.S. can’t charge a 10 percent tariff on Canada but not Argentina.”
Past presidents from both parties worked hard to get other nations to join the WTO and adhere to a system that barred the arbitrary use of tariffs. Now the United States is facing multiple challenges at the WTO for inappropriate conduct.
If the United States loses such cases, Trump might simply ignore the rulings or even pull out of the organization. His administration has already blocked new appointments to the WTO’s appellate body, creating a backlog of trade disputes.
Some economists say that Trump is correct that trade has had some downsides that policymakers should address. But his explosive approach is misguided, they say.
“It is possible to address the negative consequences of liberalizing trade without destroying the global trade system, which has brought so much prosperity to the world,” said Minouche Shafik, director of the London School of Economics and recently deputy governor of the Bank of England.