Thursday, May 31, 2018

Trump trade war starts tomorrow

Commerce Secretary Wilbur Ross announced that the US will impose tariffs on steel and aluminum products from Canada, Mexico and the European Union starting on Friday. The close US allies had previously been given exemptions from the tariffs that the president imposed on other countries last March.  

All three trading partners vowed to impose retaliatory tariffs on the US in return. The Wall Street Journal reports that the European Union has prepared a list of $7.5 billion worth of US exports that could begin to be subject to increased tariffs on June 20. Mexico said that it will target US products “up to an amount comparable to the level of damage” that US tariffs inflict on Mexican exports. Canada did not make a specific statement, but had previously vowed to retaliate if the Trump Administration imposed new tariffs.

Canada and Mexico are parties to the North American Free Trade Agreement (NAFTA) with the US, which eliminated tariffs on much trade between the three countries. They were exempted from the earlier tariffs as negotiations to revise NAFTA proceeded. It is uncertain how the new tariffs will affect the trade pact.

“Those talks have been taking longer than we had hoped,” Secretary Ross told reporters.

The EU also had a temporary exemption as trade representatives tried to reach a permanent agreement. “We continue to be quite willing and indeed eager to have further discussions with all of those parties,” Ross said.

Additional tariffs on China are slated to go into effect next month. The Trump Administration called a truce to the Chinese trade war in May, but then announced it would proceed with the tariffs. The Chinese government has also vowed to retaliate.

The new tariffs on Canada, Mexico and Europe have the potential to be much more damaging to the US economy than the previous round of tariffs. Canada and Mexico rank first and third respectively in steel exports to the US. The two countries send more steel to the US than the rest of the top five countries combined.

Canada and Mexico also rank second and third, just behind China, as America’s top trading partners. Four European countries, Germany, the United Kingdom, France and Italy, are also among the top ten trading partners.

The trade war is already expanding beyond the steel and aluminum industries that Trump originally set out to protect. The Washington Post reports that European retaliatory tariffs include products as varied as Kentucky bourbon and Harley Davidson motorcycles. Mexican duties will be imposed US pork bellies, blueberries, apples, grapes, cheeses and steel.

If the tariffs go into effect, the result could be a slowing economy in the months prior to the midterm elections. This could give Democrats a desperately needed issue with which to attack Republicans. If trade becomes an issue in the election with Democrats embracing free trade and Republicans defending big government tariffs, politics will have officially turned upside-down.

Originally published on The Resurgent

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