After more than a year of talk, US President Donald Trump has finally followed through on his threat to take action on trade, with some concessions.
Trump signed an order on Thursday afternoon to impose tariffs on imports on steel and aluminum of 25% and 10% respectively, as promised. Markets took the decision in stride after Trump not only indicated there will be carve-outs for Canada and Mexico, the first- and fourth-largest metals exporters to the US, but also suggested other allies could negotiate for exemption.
Regarding military allies, Trump said, “We’re going to see who’s treating us fairly, who’s not treating us fairly. Part of that is going to be military – who’s paying the bills, who’s not paying the bills.”
The trade action was taken citing a statute enacted in the 1960s, which grants the president authority to make trade policy based on national security grounds, a route that has been carefully avoided by previous administrations.
The downsizing of America’s steel and aluminum industries, the president said, is “not merely an economic disaster, it’s a security disaster. Now we are finally taking action to correct this long-overdue problem.”
Some have pointed out that the president has undermined the policy’s national-security basis.
“The rationale that this should be based on national security is obviously disproven by the president’s own words,” Austan Goolsbee, former Obama administration chairman of the Council of Economic Advisers, said in an interview with CNN.
“You saw him right there in his [previous] announcement saying ‘I reserve the right to raise the rate or lower the rate on whoever I want because I just want to be treated fairly.’ That negotiating tactic that this would be used because we want to get them to change their tariff rates – that’s not a national-security rationale.”
Regardless of the ultimate goal, or economic impact, of the tariffs, citing national-security grounds for taking trade action poses potentially serious long-term risks for the international trade system, experts say. One reason is that doing so to contravene obligations under the World Trade Organization is technically allowed, but threatens the effectiveness of the organization.
“[National security] is an area that everyone has long understood is potentially very contentious and leads to very dangerous kinds of questions for the WTO,” Eric Altbach, former deputy assistant US trade representative for China affairs, told Asia Times.
“In the WTO system people understand that if you require the WTO, for example in dispute settlement, to determine what is an appropriate interpretation of national security, that is both extremely difficult for a dispute-settlement panel to do and extremely dangerous for the legitimacy of the organization as a whole,” said Altbach, who is now a senior vice-president of Washington-based consulting firm Albright Stonebridge Group.
“It puts the WTO down a path of being an arbiter of national security in a way that the WTO doesn’t want to be, and that its members don’t want it to be,” he added.
Trump signals tit-for-tat ‘reciprocal tax’
Leading up to the signing on Thursday, a frantic lobbying effort by Republican lawmakers – which appears to have been partially successful – urged the president to spare allies, specifically Mexico, Canada, the European Union and South Korea. But many of the voices warning of a trade war showed less sympathy for China – which Trump indicated on Wednesday morning would be the target of his next action on trade.
The action on steel and aluminum, some including European Central Bank chief Mario Draghi say, will likely have only a marginal effect on the economy – even more the case considering the potential for exemptions. The impact of the metals tariffs is “not going to be big,” Draghi said in comments on Thursday.
More concerning to some are the looming moves to place sweeping tariffs on Chinese products, which reports have suggested are ready to be rolled out at any moment. While the Chinese have so far had a more measured response to talk of the steel and aluminum tariffs than some leaders in Europe, moves specifically targeting China might be enough to spark a painful trade conflict.
Trump hints that another trade action could be coming soon. This is the one that many aides thought would be announced before the steel/aluminum tariffs and it’s pretty much ready to go. https://t.co/o8dEzuVW4s
— Andrew Restuccia (@AndrewRestuccia) March 7, 2018
“If [the Trump administration] decides to impose sweeping tariffs on a large number of Chinese products or other market access barriers, that would be something the Chinese, I think, would react very strongly to, and there would be a much stronger response than what may be the case for the potential 232 case on steel and aluminum,” Altbach said.
Trump said during the signing ceremony Thursday afternoon that tariffs on Chinese products, which he referred to as a “reciprocal tax” are on their way “at some point.”
“We’re going to be doing a reciprocal tax program at some point. So that if China’s going to charge us 25%,” Trump warned, “we’re going to be at those same numbers.”
While retaliation and legal challenges can be expected in the case of tariffs, Altbach noted that there is little China could do to challenge possible restrictions on investments, from a legal standpoint.
“[Unlike tariffs] in investment we have much freer rein [with regard to WTO obligations], so some people speculate the Trump administration might go that route,” he said.
We have to wait and see who has the staying power, who has higher tolerance for pain. My bet, US will blink.
Well lets see now. One country China, has 4 trillion dollars in foreign reserves, or money in the bank, while the other country , the US, is over 50 trillion in debt. The US makes nothing but guns and that market is saturated, while China produces everything that the US uses except guns. So who is sitting with a straight flush king high and who is sitiin with a pair of duces?
Read the following and decide who is breaking WTO rules. USA or China.
Principles of the trading system
The WTO establishes a framework for trade policies; it does not define or specify outcomes. Five principles are of particular importance in understanding both the pre-1994 GATT and the WTO:
Non-discrimination. It has two major components: the most favoured nation (MFN) rule, and the national treatment policy. Both are embedded in the main WTO rules on goods, services, and intellectual property, but their precise scope and nature differ across these areas. The MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favourable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members." National treatment means that imported goods should be treated no less favourably than domestically produced goods (at least after the foreign goods have entered the market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).
Reciprocity. It reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialise.
Binding and enforceable commitments. The tariff commitments made by WTO members in a multilateral trade negotiation and on accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling bindings": a country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures.
Transparency. The WTO members are required to publish their trade regulations, to maintain institutions allowing for the review of administrative decisions affecting trade, to respond to requests for information by other members, and to notify changes in trade policies to the WTO. These internal transparency requirements are supplemented and facilitated by periodic country-specific reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO system tries also to improve predictability and stability, discouraging the use of quotas and other measures used to set limits on quantities of imports.
Safety values. In specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.
International trade: Lowering of import duties and other trade barriers in return for similar concessions from another country. Reciprocity is a traditional principle of GATT/WTO, but is practicable only between developed nations due to their roughly matching economies.
There is one topic which is never brought up by US politicians, so-called economists like Navarro and ideologues when discussing the US trade deficit, is the impact of the US Dollar as international reserve currency.
Without this status, the US would have to purchase foreign currencies to finance its imports,leading to a drop in the value of the dollar, an increase in import prices and causing a fall in imports. This is a self-adjusting mechanism which is absent from the current system. Thus when an increase in China’s imports caused a fall in the Remenbi, the US calls it " currency manipulation."
Currently, the US enjoys an unfair advantage by issuing dollars to finance imports and because of the international demand for dollars commensurate with growth in international trade, the value of the dollar and thus low pricing for its imports is maintained. The dollars earned by exporting countries is recycled/loaned back to the US by " investing" in US securities, keeping the US liquid to finance the next round of imports, thus creating a vicious cycle. Years of QE to reflate the US after the disastrous financial collapse in 2008 did not depreciate the dollar.
The US trade deficit is identically equal to the excess of spending/investments over savings. This is an economic law.
The massive excess spending is, apart from government macroeconomic and financial policies, a result of the US Dollar being an international reserve currency making it pain free and cheap to finance imports.
Symptomatic of the excess spending is the USD 21 trillion missing/unaccounted from the Federal Budget which reflects a systemic and chronic breakdown in the Federal accounting control system. Google Catherine Austin Fitts for this. This is threat to national security but is never discussed by the economists and politicians.
Instead they prefer to blame the problems of the US economy on foreign countries, especially China. Trump is well known to behave in this manner.
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