Economist Jeffrey Sachs claims President Trump has sparked off a ‘psychopath’s trade war’. In an op ed for CNN he asked if Trump was the ‘Manchurian candidate’ determined to bring about the downfall of the USA, and speculated that it is more likely that he is ‘mentally unstable’ or ‘delusional’. According to the Guardian, ‘Trump’s trade war threatens global peace’ and ‘declares us America’s enemies’. The Business Insider reckons that ‘Trump’s trade war is likely going to kill hundreds of thousands of jobs’.
It’s not just the media. Plans were swiftly announced for the EU to strike back with retaliatory measures against President Trump’s tariffs on steel and aluminium. In Brussels Jean-Claude Juncker said: ‘This is a bad day for world trade. We will immediately introduce a settlement dispute with the WTO and will announce counterbalancing measures in the coming hours.’ Whether the EU’s combative stance can be maintained is not certain.
This is where it gets tricky for the EU. To listen to its leaders one would think that the EU operated as a harmonious whole, each nation dedicated to helping the others in countering aggressive American negotiating. The EU, however, does not have a good record when it comes to setting aside national differences in pursuit of common aims. Today the union appears more divided than ever.
Britain, although still part of the EU, is trying, however ineffectually, to extricate itself from the grasp of Brussels. A populist government with no love for the EU has just assumed power in Italy. Spain has changed leaders, while Hungary and Poland are pushing the EU as far as they can on issues which are core to the elites’ vision. Last weekend Slovenia’s elections saw the Eurosceptic Slovenian Democratic Party emerge victorious. On top of this, European economic growth appears to be slowing, with factory orders down in Germany. The EU does not have its troubles to seek.
It should be remembered that Trump sees himself not as a politician but as a deal-maker, and at present his deal-making is working for the USA. In March, when he announced the prospect of steel and aluminium tariffs, his administration gave notice that this was an opening move in a negotiation. Soon the United States exempted South Korea, a major steel exporter, in exchange for Korea opening its market to American-made automobiles.
The Trump administration had hoped to use the South Korea agreement as a template in extracting similar concessions from the EU and Canada, which had been granted temporary exemptions. America suggested the EU could gain a permanent exemption from the American tariffs by reducing its own high duties on American motor vehicles while limiting its exports of steel.
European leaders utterly rejected this approach, seeing it as a demeaning way to treat the USA’s longstanding allies. President Macron responded to the tariff raises: ‘What we are demanding is that we are exempted without conditions or time limits.’ The USA is, however, growing a little tired of supporting a less than grateful Europe and is unlikely to be persuaded by a collective European tantrum. Stamp its feet as much as it likes, the EU is not in a strong bargaining position.
Since WWII America has invested heavily in maintaining a free Western Europe. This is not purely out of the goodness of its heart but for its own strategic interest: a free Europe was a bulwark against imperialist Soviet communism.
Unfortunately, instead of fully participating in its own defence Europe has for decades taken advantage of the USA and failed to stump up its agreed share of costs. Only four of the 27 other member countries of NATO met the agreed goal of spending at least 2 per cent of their gross domestic product on defence last year.
US Defense Secretary Jim Mattis has said: ‘America will meet its responsibilities, but if your nations do not want to see America moderate its commitment to the alliance, each of your capitals needs to show its support for our common defence.’
All state bodies, including the EU, impose tariffs. The EU, which produced vast agricultural surpluses under CAP, dumped its surplus food on the world market at very low prices. This caused significant problems for farmers in the rest of the world, especially in the developing world, who saw their market prices plummet.
China has been dumping steel and aluminium in the West for many years, to the heavy cost of the British as well as the American steel industry. It is reckoned that steel exports from China increased by 28 per cent in the first six months of 2015, despite production falling by 2 per cent. To survive, Chinese state-owned, supported or controlled steel mills sold overseas at a loss to maintain their production lines and to empty overstocked warehouses.
To protect European steel making, the EU has already imposed its own tariffs to combat China dumping steel in Europe. Now the USA has also imposed steel tariffs on China to adjust its trade balance and protect American jobs. ‘Nothing can create jobs faster in the United States than making China trade fairly,’ said Roger Schagrin, a lawyer representing the US steel industry.
There are many arguments against unrestricted trade: nascent industries have to be protected, imports have to be restricted to help the balance of payments, and industries have to be protected against dumping. Importantly, some industries need to remain healthy and in national hands for security purposes.
Donald Trump invoked national security when he slapped a 25 per cent tariff on steel and 10 per cent on aluminium by removing the EU from the temporary exemption granted in March. Trump’s stance is echoed by US commerce secretary Wilbur Ross: ‘Economic security is military security.’ Britain has forgotten that a steel industry is an important strategic asset; Trump hasn’t. As Adam Smith himself remarked: ‘Defence is superior to opulence.’
Trump is a businessman and the sky hasn’t fallen in yet; the negotiations will go on, deals will be arranged, accommodations made. But make no mistake, America is in a stronger position economically than Europe, and with high employment figures Trump is stronger than before. The EU and the UK had better get ready for some hard bargaining.