Trump, Trade Wars and China

This post was kindly submitted by a Sixth-Form Student at St. George’s College, Weybridge.

US trade policy in the Trump era is defined by one word: protectionism. Essentially, this ideology argues against free trade and, to a larger extent, globalism. It is the trade aspect of his all-round America First approach. In practice, it is the economic policy of restricting imports from other countries through methods such as tariffs. In the US, protectionism has taken the form of tariffs against China. However, before Trump picked a fight with China, he had a bigger enemy – Mexico.

An image that clearly summaries Trump’s protectionism

While campaigning in 2015 and 2016, a common phrase heard from Trump was ‘Mexico is taking our jobs!’ This is how his protectionism was formed. His base is largely made up of white, working class men in exurban areas who had lost their jobs as companies moved to countries with cheaper labour or began to automate. So Trump fought against the loss of American jobs more than any traditional, free-market Republican. That’s not to say he wasn’t thinking about China before his presidency, but his was focus was on jobs and not trade.

After becoming the President, one of Trump’s goals was to renegotiate NAFTA, and end the large trade deficits that the US has been running for so many years. A businessman at heart, not a politician or economist, he saw these deficits as losing. There is a logic to this – running a deficit means you are buying more from a country than selling to them, which in turn means they are getting more money from you than you are getting from them. His other complaints of China were accusations of intellectual property, and earlier this year, the administration officially named them a currency manipulator. So in March 2018, Trump laid the first set of tariffs on China, in an attempt to rebalance. The tariffs were 25% on $50billion dollars of Chinese goods, mostly on steel and aluminum. China consequently announced tariffs on approximately the same value of goods. They have been increasing the tariffs ever since, while remaining in negotiations.

The most interesting aspect of Trump’s protectionism is how badly it fits with most right-wing ideology. When farmers in Middle America were suffering badly due to tariffs on their soybeans, the Trump administration gave them $100bn in aid. Essentially, this is government bailout due to failed market intervention – two things that Republicans never traditionally support. The ‘America First’ philosophy has inverted the traditional debates. Whereas Democrats used to be wary of free-trade, eager to protect blue-collar jobs, Republicans lived by it, preaching the invisible hand of the market would produce the outcome.

On an international scale, the trade war has led to widespread fears of a global economic slowdown in the next two years among economists. The rest of the world is fearful of Trump’s tactics but wary to get involved. At this year’s G7 summit, the European Council President Donald Tusk said “trade wars will lead to recession.” The fact that most tariffs are on basic goods (steel, aluminum, etc.) means that the world’s whole manufacturing sector is struggling as a result of the higher prices. Germany, a manufacturing-based economy, is already in a recession.

Tariffs were a key part of discussions at August’s G7 meeting in France.

In the first week of October 2019, Trump has also added $6 billion worth of tariffs onto the EU, mostly as a response to the large subsidies that the EU gives Airbus, Boeing’s competitor. The Brussels-based EU executive consequently proposed tariffs worth £15 billion on US goods.  This new fight is creating tensions between the EU and US. France urged the EU to respond ‘firmly’ against the US if the tariffs come into force in the coming weeks. Juncker, the European Commission’s president, said: ‘Trade wars are easy to start but escalate quickly and usually end badly. Whoever starts a trade war will end badly in his own camp. Europe will always defend free and fair trade, based on a level-playing field and reciprocity.’ This additional tension will undoubtedly continue to build, and could lead to long-lasting damage to the EU-US relationship. It is unclear on the impact that this could have on Britain’s own special relationship with the US.

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