By Blog Writer Christy Williams
January 20th 2017, Donald J. Trump addresses the crowds from the west front of the United States Capitol Building in Washington D.C, after he is sworn in as President of the world’s richest and most powerful country. “For many decades, we’ve enriched foreign industry at the expense of American industry” he exclaims. “From this moment on, it’s going to be America First.”. But what have Trump’s policies since that day meant for American and world commerce?
Throughout his Presidential campaign, Mr Trump stressed his commitment to ‘protectionist’ trade policies, in which he wants to protect US industries from foreign competition in the US market. His weapon of choice: taxing products entering the US from its trading partners, widely referred to as trade tariffs. By increasing tariffs on products entering the US, the President hopes to make it more expensive for foreign traders to sell their goods in the US. In doing this, he hopes to muscle out international rivals to US producers in areas such as steel and aluminium.
During his first term, the President has also attacked the trade deficit in which the US spent $556bn more than it earned from international trade in 2017, criticising nations across the globe for their ‘unfair trading practices’. All this led to soaring tariffs and the scrapping of many free-trade agreements between the US and other major economies. This is what Trump and the media now refer to as a ‘trade war’.
Despite all this, the US and the EU have now announced plans to work towards a ‘zero’ tariff agreement, with the EU also agreeing to buy billions of dollars worth of American soya beans and natural gas. With the promise that neither the EU or the US will escalate any trade conflict further, it would appear that the struggle is resolved and the normality of free market trade resumed.
Nevertheless, Washington has already started dismantling many of its key trading agreements. The long-standing North American Free Trade Agreement (NAFTA), which reduces tariffs on products traveling between the US, Canada and Mexico, has been condemned by Trump as ‘the worst trade deal’ in US history, and is being struck down and re-negotiated by his administration. Canadian steel exports to the US have been hit with new taxes and China has also been a target, with the President believing the US is being ‘ripped off’ by current agreements. A subsequent 25% tariff has been slapped on €50bn worth of Chinese imports.
This has not been taken lightly by Beijing, who announced retaliatory tariffs on US exports to China almost immediately. Canada has also matched Trump’s tariffs and the EU has threatened to go through the World Trade Organisation to respond to Trump’s 25% tariff on EU steel entering the US. So, despite an apparent scaling back of the battle with the EU, Trump’s volatility remains a worry for many, with experts continuing to warn of the dangers of all out Trade War; this is especially true given the distinct lack of detail given in his recent agreement with the EU.
With so many multi-national corporations based in the US, it is unsurprising that over 1 in 5 US jobs are reliant on international trade. Tariffs imposed in response to Trump put the profit of many of these businesses at risk due to the increased cost of trading. With turnover at risk comes the threat of American job loss at all levels- from the production line in the factories to middle management in the offices.
It is not just large corporations but also small businesses at risk, with 98% of the USA’s exporters being small and medium-sized companies (as of 2015). It also goes without saying that taxing steel and aluminium imports hurts the US industries that rely on them; usually, raised tariffs are set on finished goods rather than raw materials to avoid this sort of damage.
Whilst Trump hopes to aid US industries through this protectionist narrative, a trade war will put many of those same industries under considerable strain, with the United States exporting $1.6 trillion in goods in 2013. Only China exports more than the US on the world stage (with the EU exporting roughly the same amount) so America will undoubtedly feel the strain of a tit-for-tat tariff battle with its biggest partners. Therefore, the question stands over whether Trump’s trade wars will do much more harm than good to the very industries he seeks to protect.
Sources and Further Reading
- The Inaugural Address, (20/01/2017), The White House
- ‘US trade: Is Trump right about the deficit?’, BBC News (10 March 2018)
- ‘Donald Trump To Sign Executive Order To Probe China’s ‘Unfair’ Trade Practices’, FirstPost (13 August 2017)
- ‘What is NAFTA and why does Trump want it renegotiated?’, AlJazeera (19 August 2017)
- Dr. Michael Ivanovitch, ‘Trump is getting nowhere with Europe and China on widening trade deficits’, CNBC (11 June 2018)
- Angela Monaghan, ‘US-China trade tensions escalate as Trump approves $50bn of tariffs - as it happened’, The Guardian (15 June 2018)
- ‘China takes aim at Trump trade war threats’, The Guardian (18 June 2018)
- Lily Kuo, ‘EU braced for trade war as US tariffs exemption to expire within weeks’, The Guardian (22 May 2018)
- ‘How the U.S Economy Benefits from International Trade and Investment’, Business Roundtable
- David Smoth and Dominic Rushe, ‘Trump and EU officials agree to work toward ‘zero tariff’ deal’, The Guardian (25 July 2018)
Image: NATO @flickr