U.S. touts EU trade truce, attention now turns to China

Steve Holland, David Lawder July 26, 2018

WASHINGTON (Reuters) – The United States signaled on Thursday it is set to push ahead on trade talks with Canada and Mexico after agreeing to suspend hostilities over tariffs with Europe in a fragile deal that may clear the way for renewed pressure on China.

A surprise deal struck on Wednesday will see Washington suspend the imposition of any new tariffs on the European Union, including a proposed 25 percent levy on auto imports, and hold talks over tariffs on imports of European steel and aluminum.

The deal boosted share markets initially, and U.S. industrial shares were stronger on Thursday as fears of a trade war with Europe ebbed.

Both sides claimed victory in the deal, reached by Trump and European Commission President Jean-Claude Juncker in Washington. In return for the talks and a suspension of auto tariffs, the EU will import more soybeans and energy from the United States.

A White House official told Reuters that Juncker had shown greater flexibility than expected in the talks and that while there was no deadline for an overall deal, Trump retained the power to impose tariffs if progress was not made.

One key aspect of the agreement, according to the official who spoke on condition of anonymity, was that the two sides had agreed to work together to tackle China’s market abuses.

“They want to work together with us on China and they want to help us reform the WTO (World Trade Organization),” said the official, adding that the Europeans came into the talks “with a real positive spirit”.

Trump has announced a series of punitive tariffs on Chinese imports in a bid to halt a Chinese surge in high-technology industries that threatens to displace U.S. dominance. Both the U.S. and the EU charge that Chinese companies steal company secrets.

On the North American Free Trade Agreement talks with Canada and Mexico, Treasury Secretary Steve Mnuchin said he was “hopeful that we’ll have an agreement in principal in the near future.”

“Whether it’s one deal or two deals, so long as we get the right agreement, we’re indifferent,” Mnuchin told CNBC.

Trump and officials from his administration said the EU had given ground by agreeing to import more American goods and to hold talks on tariff reductions including on cars, an industry in which Trump has accused Europe of imposing heavy duties.

EU officials said little had been given away by Juncker and that Europe had emerged as the winner by getting Trump to defer the threatened car tariffs which would have hit European carmakers hard.

The deal was hailed by commentators in the United States and Europe for drawing back from an escalation in a trade war that had threatened to take the world back to the kind of protectionism not seen since the 1930s, although some cautioned the relief may be only temporary.

French President Emmanuel Macron appeared to challenge the deal, saying on Thursday he would not discuss agriculture in talks with the United States.

If it holds, the US-EU pact could allow both to focus on China, whose economic rise threatens both. Lawmakers in Washington on Thursday passed legislation to slow Chinese investment in U.S. companies. In Europe, alarm bells have been sounded over China’s growing economic influence there.

“U.S. and EU will be allied in the fight against China, which has broken the world trading system, in effect,” Trump’s economic adviser Larry Kudlow said. “President Juncker made it very clear yesterday that he intended to help us, President Trump, on the China problem.”

In Beijing, Chinese Foreign Ministry spokesman Geng Shuang said trade disputes should be resolved through talks on the basis of mutual respect and equality.

“Engaging is unilateralism or protectionism is not the way out,” Geng said, when asked about Kudlow’s comments.


Since taking office last year, Trump has implemented policies to restrict what he sees as unfair competition from other countries. He tore up an agreement to join a Pacific trade pact, has threatened to pull out of NAFTA, and imposed steel and aluminum tariffs aimed at China.

In an effort to rein in China’s high technology industries that he charges have stolen intellectual property from American companies, Trump has ramped up threats of tariffs on $50 billion worth of imports from China to $450 billion after China retaliated with its own duties on imports from the United States.

The impact has fallen mainly on U.S. farmers and Republican party lawmakers. A move by Trump to offset farmers’ losses with a $12 billion aid package drew criticism with farmers saying they wanted access to markets rather than subsidies.

U.S. Trade Representative Robert Lighthizer, a veteran of trade negotiations from former President Ronald Reagan’s administration in the 1980s who is Trump’s top trade official, told lawmakers in Washington that the United States could not afford to capitulate to China economically.

“I don’t think it’s a stupid fight,” Lighthizer said of the trade battle with China in heated exchanges in the Senate. “I don’t know a single person that has read this report that thinks it’s a stupid fight to say China should not be able to come in and steal the future of American industry.”

A more conciliatory tone emerged from Mnuchin, who told CNBC the United States was willing to reopen trade talks with China if Beijing was willing to make “serious changes,” as he said the EU had indicated it was willing to do.

In May, the United States and China initially appeared willing to strike a deal that would see China reduce its $350 billion surplus in the trading of goods by buying more U.S. agriculture and energy products.

That deal fell apart quickly and has been replaced with a rising tally of tariff retaliation that has led to Trump threatening tariffs on almost everything the United States imports from China.

China has threatened to retaliate dollar for dollar, and its refusal to sign off on regulatory approval caused a $44 billion deal from Qualcomm Inc (QCOM.O) to buy NXP Semiconductors (NXPI.O) to fall apart, a move that showed U.S. companies were being targeted unfairly, Mnuchin said.

Reporting by Susan Heavey and Lindsay Dunsmuir in Washington, Alastair MacDonald in Brussels, Ben Blanchard in Beijing and Leigh Thomas in Paris; Writing by David Chance; Editing by Will Dunham

Source: Reuters “U.S. touts EU trade truce, attention now turns to China”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

Factbox: Impact of trade tariffs on European companies

Reuters Staff July 25, 2018

(Reuters) – Some European companies are rethinking their strategies to cushion the impact of trade tensions between the world’s two biggest economies, the United States and China.

The focus will switch back to China after a truce on tariffs emerged from U.S. President Donald Trump’s meeting with European Commission President Jean-Claude Juncker on July 25.

Trump and Juncker agreed to suspend any new tariffs on the European Union, including a proposed 25 percent levy on auto imports, and hold talks over duties on imports of European steel and aluminum.

However, Trump retained the power to impose tariffs, if no progress is made.

Source: Reuters “Factbox: Impact of trade tariffs on European companies”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

In the case of China, Trump threatened this month that he was ready to impose tariffs on an additional $500 billion of imports.

The United States has already imposed tariffs on $34 billion of Chinese imports. In return, China has levied taxes on the same value of U.S. products.

Below are recent comments from European companies on trade tensions:

** Mercedes maker Daimler (DAIGn.DE) blamed U.S.-China tariffs for a 30 percent drop in second-quarter profit announced on July 26 and prefigured in a profit warning last month.

** French electrical equipment company Schneider Electric (SCHN.PA) said on July 26 that it foresaw growth slowing in the second half of the year and expected the first extra costs linked to higher U.S. tariffs, which could reach 20 million euros.

** “If the trade war escalates we are more concerned about the consequences that it can have on global macro environment,” STMicro’s (STM.PA) new Chief Executive Jean-Marc Chery, said on July 25, adding that direct impact of trade war risks were currently “negligible”.

** Fiat Chrysler (FCHA.MI) cut 2018 outlook on July 25, hurt by weaker performance in China. Its operating profit for the second-quarter was negatively impacted by China import duty changes.

Trump Has No Popular Support for His Trade War

While US President Trump raises import tariff to attack China in the trade it has started against China, US Congress has passed a law to reduce tariffs according to Reuters’s report “U.S. Senate quietly votes to cut tariffs on hundreds of Chinese goods” today.

The report says:

With no debate, the Senate unanimously passed a bill that would cut or eliminate tariffs on toasters, chemicals and roughly 1,660 other items made outside the United States.

Nearly half of those items are produced in China, according to a Reuters analysis of government records.

It says the bill has now been adopted by both the Senate and House of Representatives and is waiting for Trump to sing into law.

Trump must be embarrassed that US Congress wants to cut tariffs on lots of Chinese exports while he has increase and plans to further increase tariffs on Chinese export to the US.

It gives him a clear message that his trade war has no popular support.

His trade war enemy, however, has full popular support due to Chinese people’s patriotism and their China Dream.

Poor Trump!

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at https://www.reuters.com/article/us-usa-congress-trade/u-s-senate-quietly-votes-to-cut-tariffs-on-hundreds-of-chinese-goods-idUSKBN1KG35R.

Loss of Chinese Market, World Market Share, Permanent Harm to the US

Reuters’ report “Trump says China is ‘vicious,’ using U.S. farmers as trade pawns” shows that Trump is upset that China’s retaliation of tariff hikes hit US farmers hard. He has to provide $12 billion to help US farmers and made EU to buy more US soyabean.

With developed agriculture EU is America’s competitor in the world agricultural market. In addition, there are underdeveloped parts in EU with potential to increase farm production. Therefore, EU may only absorb a limited part of US surplus soyabean but is far from being able replace China in absorbing $13 billion soyabean that China would stop purchase from the US due to the trade war.

The US shall be clear that it is utterly impossible to find a market sufficiently large in the world to replace Chinese market, which has world largest population with increasingly greater demand for farm products as Chinese economy and people keeps on growing richer.

On the Chinese side, the trade war makes China realize the urgency of agricultural development for food self-sufficiency in case of war or serious natural disaster.

China has to speed up its project to divert water from Tibet to Xinjiang to convert its vast desert there into rich farm land. That will increase China’s farm land by at least 330,000 square kilometers through conversion of desert. It will enable China not only to put an end to most of its imports of farm products but also grab from the US share of world agricultural market.

It will be a lethal way that benefits China while “killing” the enemy in the trade war.

In a war one has to be vicious instead of kind. Are Trump’s tariff hikes that may cause Chinese enterprises to bankrupt not vicious?

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at https://www.reuters.com/article/us-usa-trade-farmers/trump-says-china-is-vicious-using-u-s-farmers-as-trade-pawns-idUSKBN1KF1J4.

Experts: China Waging War Against the U.S.

‘We need to quit talking about Russia. There is a real war going on’

BY: Natalie Johnson
July 24, 2018 1:20 pm

China is waging war against the United States through a far-reaching foreign influence operations campaign that has raised concerns of spying and technology theft, according to regional experts.

In testimony before the House Intelligence Committee last week, James Phillips, chairman and CEO of NanoMench Inc., warned the Chinese government is subtly exploiting America’s open innovation model to steal business secrets and academic research, posing a greater national security threat than the much-publicized actions by Russia.

“We need to quit talking about Russia,” Phillips said. “There’s a real war going on—it’s a cyber war like never before, where they’re invading the United States every day trying to take over the United States in terms of our science and technology. If they’re not stealing it they’re imitating it, or they’re trying to get it through other means.”

U.S. intelligence officials have warned for years of Beijing’s emergence as a major strategic competitor that is seeking to supplant the United States as an economic and military powerhouse. During a security conference in Aspen, Colo., last week, FBI Director Christopher Wray called China the “most significant” long-term threat to the country, noting the bureau is pursuing Chinese-linked economic espionage investigations in all 50 states.

The CIA has raised similar concerns, issuing a classified report detailing China’s efforts to impart financial incentives as leverage to permeate American institutions. Partnerships between Chinese companies and U.S. universities have been of particular concern, especially on campuses that have ties with Beijing-based firms and host sensitive Pentagon research.

Elsa Kania, an adjunct fellow at the Center for a New American Security, testified at the hearing that China has staged several intrusions over the past few years targeting universities that engage in military research, including Penn State and the University of Virginia.

Though the Defense Department is now investigating these partnerships, the Pentagon’s undersecretary for research and engineering has said the department is “not yet as vigilant” as it needs to be to ensure military research is withheld from campuses that have these ties.

Congress has also targeted these partnerships in recent months, hosting several congressional panels that have examined attempts by foreign actors to infiltrate American institutions of higher education to conduct espionage and steal federally funded research.

A bipartisan group of 26 lawmakers last month sent a letter to Secretary of Education Betsy Devos urging her to require American universities working with Chinese technology titan Huawei to hand over all documents and information related to the partnership.

Phillips, of NanoMench, testified that what the Chinese are not stealing, the United States is giving away to them through faulty technology transfer commercialization programs.

“We’re publishing our very best science out of our universities, national labs onto the internet, giving it free to countries like China,” Phillips said. “It just doesn’t make any sense to the extent that that could be moved from ideation to invention to innovation to full execution commercialization and we could have the lead on innovation, not only now, but on a permanent basis and all that translates to GDP. The winner is not going to be through wars anymore, it’s going to be through GDP—the country with the best jobs and the most jobs.”

This entry was posted in National Security and tagged China, Cyber Security. Bookmark the permalink.

Natalie Johnson Email Natalie | Full Bio | RSS
Natalie Johnson is a staff writer at the Washington Free Beacon. Prior to joining the Free Beacon, she was a news reporter at the Daily Signal. Johnson’s work has been featured in outlets such as Newsweek, Fox News and Drudge Report. She graduated from James Madison University in 2015 with a B.A. in political science and journalism. She can be reached at johnson@freebeacon.com. Her twitter handle is @nataliejohnsonn.

Source: Washington Free Beacon “Experts: China Waging War Against the U.S.”

Note: This is Washington Free Beacon’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.

Trump Shrewd Not to Fight Trade War in Two Fronts, China and EU

At first Trump carried on US traditional arrogance to be harsh on both China and EU, but now he has changed his strategy to try to make a deal with EU.

The US will be in a better position if EU supports it. Reuters says in its report “Breakingviews – Trump and Juncker revive Obama-era trade goals” today that Trump’s initial deal with EU to sell soyabean to EU shall be regarded as his success in obtaining EU’s support in his trade war with China.

Certainly EU also has to protect its farmers’ interests and may not allow US free access to EU’s agricultural market. Due to conflicts of interests especially the fierce competition between Germany and the US in the market of high-end industrial goods, prospect of further cooperation between EU and the US in dealing with China are not optimistic.

However, there are also conflicts of interests between EU and China so that China cannot expect that EU will help it in resisting US trade war attacks. EU may exploit the trade war between the US and China to be benefited from both China and the US,

China shall be prepared to win the trade war alone.

The calculation of 500 v. 150 mentioned in my previous posts “New American Dream: Stop China’s Rise, Maintain US Hegemony” and “Pink House’s Party to Celebrate Victory of Trade War with China” certainly cannot determine the results of the trade war as the value of the goods for exports that may subject to high tariff is but one of the factors and especially not the decisive factor.

There are exports other than export of goods, for example the exports of tourism services. US earned $33 billion in exports of such services in 2017. Unlike imports of goods, some of which are indispensable China can entirely do without import of US tourism services. The US will thus suffer a net loss of $33 billion from Chinese travelers. That may be more serious loss than the loss coursed to China by 10% tariff hike on $100 billion goods. The US may still have to import most of those goods as there are no alternative sources available within a short time.

Even in terms of trade there are quite a few other factors to be taken into account, financial services, legal services, accounting services, etc.

There are other ways that the US simply does not know.

Anyway, the results of a trade war to a very great extent are determined by the two sides’ economic strength. China is not weaker than the US in that respect. Its GDP has surpassed the US in PPP terms.

According to Chinese sage Mencius, popular support is vital. China has full popular support while in the US lots of people and companies oppose Trump’s trade war.

There is another vital factor, the wisdom and art of war of the commander. Trump has grown better in dealing with EU. If he is not stubborn to persist in withdrawing from the TPP, he will have more allies in dealing with China, but that does not seem possible.

Anyway, China shall not regard Trump as a stupid moron in dealing with the US. It shall design ingenious surprise moves to hit the US hard. Let’s wait and see.

Comment by Chan Kai Yee on Reuters’ report, full text of which can be viewed at https://www.reuters.com/article/us-usa-trade-breakingviews/breakingviews-trump-and-juncker-revive-obama-era-trade-goals-idUSKBN1KF31S.

China’s Xi Determined to Fight and Defeat US in Trade War

US President Trump first threatened to start a trade war with China to reduce US trade deficit with China, but when China offered to buy more US goods starting from the additional purchase of $70 billion of US goods this year, Trump does not accept.

He, instead, wanted China to cease alleged theft or forced transfer of US technology and refrain from providing funds for development of China’s own high technology. Particularly, to scrap China’s Made in China 2025 plan.

As China has not stolen or force transfer of US technology, promising ceasing doing so will hurt China’s dignity. (See my post “Theft, Forced Transfer of US Technology but the Pretext for Trade War” on July 21.)

China wants to switch from export- and investment-geared economic growth to creation-, innovation- and consumption-geared economic growth. Promising not to provide funds for creation and innovation means that China has to give up its pursuit of the China dream of national rejuvenation. China dream is also Chinese President Xi Jinping’s dream. Can he give up that dream?

The truth is that the US wants to start a trade war to destroy China or at least stop China’s rise. The trade deficit was but a pretext for starting the war. Trump did not expect that China is so generous and sincere in reducing the trade deficit to make him unable to use the deficit as a pretext to start the trade war.

He has to find another pretext. Having no pretext available, he resorts to falsification so that he has invented the accusation of China stealing and forcing transfer of US technology, Based on such false accusation, he set the term that China must stop theft and forced transfer of US technology and scrap China’s Made in China 2025 plan. He knows well China can never accept such term as to humiliate itself so that he is sure that he can use the pretext to start the trade war. True enough he does have started the trade war he wants.

However, how can Trump convince American people to obtain popular support? SCMP’s report “Xi Jinping ‘doesn’t intend to follow through’ on trade war talks and local Chinese officials are ‘like mafioso dons’, says top Donald Trump adviser Larry Kudlow” on July 19 tells us that Trump’s adviser Larry Kudlow invented the absurd story that as China restricted foreign party’s share in US joint venture with China to below 50%, foreign party has to show Chinese party its blueprints so that the Chinese party can steal American party’s technology.

That is really absurd. If a foreign party uses its technology in a joint venture with a Chinese party, it is utterly impossible to prevent its technology from being known by the Chinese party as it has to employ Chinese staff and workers. Creating job opportunities for China is a compulsory requirement for a Chinese-foreign joint venture. A foreign party is utterly unable to set up a joint venture with China if it refuses to employ Chinese staff and workers. It’s common sense that Chinese staff and workers will learn the technology in the course of the joint venture’s operation.

To keep the technology confidential, a foreign enterprise has to set up a branch wholly owned by it. Even so, it has to have competent lawyers to help it keep its technology confidential by the establishment of a security system, preparation of compulsory non-disclosure documents for its staff and workers to sign, discovering, puting an end to and punishing infringement of the enterprise’s intellectual property, etc.

Now, China has lifted most of the restrictions for US enterprises to set up wholly owned branches in China. In spite of that, Trump has started trade war with China and plans to intensify it.

Under such circumstances, Xi would have been regarded as a fool if he could not have seen through Trump’s tricks. Xi certainly cannot give up his China dream and the Made in China 2025 to satisfy Trump. He has to fight back.

Though full of lies, Hudlow at lease is correct that Xi would not accept US terms.

However, Trump and Hudlow still have the illusion that US attacks may soften Xi and make him surrender so that they adopt the strategy of escalation, a stupid strategy as to win a war one has to concentrate all available force before one’s sudden powerful offensive. There shall be surprise but no surprise is possible in escalation.

Xi does not respond as he has to make full preparations before his ingenious surprise move. His sudden fast construction of artificial islands in the South China Sea to obtain full control of the sea proves that he is a commander with good mastery of Sun Tze’s art of war.

Therefore the really interesting part of the trade war is yet to come!

Comment by Chan Kai Yee on SCMP’s report, full text of which can be viewed at https://www.reuters.com/article/us-usa-trade-china/china-says-u-s-blaming-xi-for-blocking-trade-deal-is-bogus-idUSKBN1K90UF.

US Tariff Hikes Have No Significant Impact on China, but China’s Have.

SCMP says it its report “Beijing continues to play down ‘Made in China 2025’, saying world should take ‘objective’ view” yesterday that according to Huang Libin, spokesman of China’s Ministry and Information Technology, China’s trade dispute with the US has not yet had a significant effect on Chinese economy.

The report quotes Huang as saying, “We hear complaints from [Chinese] companies that US clients have requested a suspension of orders and deliveries, but so far it has had only a limited impact on the industrial sector.”

The US checks the impact of its tariff hikes on Chinese exports and finds that the impact is insignificant on US companies (see Reuters’ report “Factbox: Impact of U.S.-China trade tariffs on U.S. companies” that this blogger reblogged yesterday.)

But that is assessment of the harm done by US tariff hikes to the US itself. The factbox has no assessment of the impact on China.

However, China’s tariff hikes on US exports of agricultural products, especially soyabean, seem to have serious impact. Trump has to allocate $12 billion to subsidize US farmers.

However, the subsidy does not enable US farmers to maintain their production of goods their biggest buyer China would not buy nor keep the jobs in US agricultural sector.

In spite of that, Trump has to provide the subsidy in order not to lose farmers’ votes in election.

Poor Trump, it seems Chinese tariff hikes hit where Trump is most vulnerable.

Comment by Chan Kai Yee on SCMP’s report, full text of which can be viewed at https://www.scmp.com/news/china/economy/article/2156676/beijing-continues-play-down-made-china-2025-saying-world-should.

American Airlines revises website to change Taiwan reference

David Shepardson July 25, 2018

WASHINGTON (Reuters) – American Airlines Group Inc (AAL.O) late on Tuesday confirmed it had changed how its website refers to Taiwan, a move expected to be followed by two other major U.S. carriers by Wednesday in an effort to avoid Chinese penalties.

Reuters reported earlier on Tuesday that the three major carriers were set to change how their websites refer to Taiwanese airports.

A check of American Airlines’ website showed it now only lists Taipei’s airport code and city, but not the name Taiwan. Beijing has demanded that foreign firms, and airlines in particular, not refer to Taiwan as non-Chinese territory on their websites, a move described by the White House in May as “Orwellian nonsense.”

China set a final deadline of July 25 for the changes, and last month rejected U.S. requests for talks on the matter, adding to tension in relations already frayed by an escalating trade conflict.

“Like other carriers, American is implementing changes to address China’s request,” American Airlines spokeswoman Shannon Gilson said late on Tuesday. “Air travel is global business, and we abide by the rules in countries where we operate.”

Hawaiian Airlines (HA.O) had changed its website ahead of the deadline to showing searches for flights to Taiwan’s capital Taipei as “Taipei, Taipei” in dropdown menus, Reuters reported on Tuesday morning.

United Airlines (UAL.N) and Delta Air Lines Inc (DAL.N) still included references to Taiwan as of late Tuesday, according to checks of their websites.

The U.S. State Department and White House did not immediately respond to requests for comment late on Tuesday.

Numerous non-U.S. airlines including Air Canada (AC.TO), Lufthansa (LHAG.DE) and British Airways (ICAG.L) had already made changes to their websites, according to Reuters checks, after China’s Civil Aviation Administration sent a letter to 36 foreign air carriers earlier in the year.

Reporting by David Shepardson; Editing by Michael Perry and Stephen Coates

Source: Reuters “American Airlines revises website to change Taiwan reference”

Note: This is Reuters’ report I post here for readers’ information. It does not mean that I agree or disagree with the report’ views.

Why the Costs of Trump’s Trade Wars Will Linger for Years

Kimberly Ann Elliott |Tuesday, July 24, 2018

Officials from the European Union are headed to Washington this week for trade talks with the Trump administration, but nobody is optimistic. If the talks don’t go well, President Donald Trump has already said he is prepared to follow through on his threat of imposing further tariffs, as high as 25 percent, on cars and car parts imported from the EU. “If we don’t negotiate something fair, then we have tremendous retribution, which we don’t want to use, but we have tremendous powers,” Trump told reporters at the White House last week. “Including cars—cars is the big one.”

However the meeting with European Commission President Jean-Claude Juncker goes, one thing is clear from this latest chapter in Trump’s quickly unfolding trade wars: Even relatively brief trade disputes can inflict costs that persist long after the war ends.

For one thing, there are direct costs arising from the disruption that higher tariffs wreak on supply chains. The Trump administration’s failure to quickly negotiate resolutions to its new trade disputes, or to conclude any new agreements, also puts U.S. exporters at a disadvantage in markets where trading partners continue to negotiate deals. And there is a range of other potential costs that could hit American producers and consumers for years, even if the current trade disputes are somehow resolved soon. But that is not looking particularly likely at the moment, and the longer the disruption lasts, the higher the risk to broader economic growth, both in the United States and around the world.

In terms of the most direct costs of trade wars, foreign buyers hit with retaliatory tariffs look for new sources. New suppliers do not disappear. Domestic plants that close or move due to higher costs or lost markets do not reopen. If the Mid-Continent Nail Corporation in Missouri, which has gotten so much news attention around the steel tariffs’ impact, closes and moves its operations to Mexico, the costs to reopen it when the tariffs finally disappear could be prohibitive. And those jobs could be lost forever. Meanwhile, farmers already grappling with lower commodity prices find themselves with unexpected surpluses that deepen debt burdens. South American farmers will be happy to increase soy and corn production to feed the fast-growing Chinese market, and will not readily cede that market down the road.

The Trump administration’s seeming preference for escalation over negotiation adds a layer of uncertainty about U.S. policy that could further disrupt supply chains and deter investment by and in American firms. Foreign direct investment into the United States dropped 40 percent in the first quarter of 2018 compared to the previous year, the lowest level in four years. Meeting in Buenos Aires over the weekend, finance ministers and central bankers from the Group of 20 large economies—including the United States, Great Britain, France, Japan, China, Brazil and Argentina—called for increased dialogue to reduce the financial risks from ongoing trade disputes.

Foreign direct investment into the United States dropped 40 percent in the first quarter of 2018 compared to the previous year, the lowest level in four years.

At the same time that President Donald Trump seems intent on closing the U.S. off from the rest of the world, other countries are continuing to negotiate agreements that will increase discrimination against American exporters. Japan led the way in salvaging the Trans-Pacific Partnership among 11 Pacific Rim nations after Trump rejected it. The deal, now minus the U.S., will lower the barriers that dairy farmers from Canada and New Zealand and cattle ranchers from Australia face in the Japanese market, giving them an advantage over American producers. Just this month, Japan and the European Union signed an economic partnership agreement that will give an edge to European winemakers. Eventually, Japanese auto producers will no longer face the 10 percent tariff in Europe that U.S. producers will continue to pay. While the Trump administration mulls additional barriers to trade with the rest of the world, Europe is negotiating to lower them with a long list of countries, including several TPP signatories in Mexico, Brazil and Argentina.

With regard to the trade war with China, Treasury Secretary Steven Mnuchin recently told a congressional committee that negotiations had broken down and that no resolution was in sight. At the G-20 meeting in Buenos Aires, Mnuchin said that it was up to China to make concessions, but he left those unspecified. If that means the trade war continues to escalate and drags on, the economic effects could become serious. Tariffs on all or most Chinese imports, as Trump has threatened, could even lead to inflationary pressures that cause the Federal Reserve to raise interest rates more than it otherwise would, which in turn could trigger a recession. The International Monetary Fund’s managing director, Christine Lagarde, told the G-20 ministers in Argentina that escalating trade fights could depress global growth by as much as half a percent.

Even if Trump’s trade war with China is resolved relatively quickly, the costs will linger and competition with China could become fiercer rather than fairer. Lack of clarity about the administration’s demands is one of the barriers to resolving the dispute. The overarching goal is purportedly to ensure that U.S. companies have a fair shot in developing and selling the technologies of the future. But, far from backing down on its “Made in China 2025” policy to develop key technologies domestically, China is likely to double down on its promotion of these sectors in order to avoid dependence on an erratic American partner.

American firms are also likely to come to rue the administration’s use of Section 232 of the Trade Expansion Act of 1962 to restrict imports for national security reasons. While the case for steel and aluminum as essential to national security is plausible, the application of tariffs against close neighbors, and allies and adversaries alike, undermined the case. The administration’s opening of a new investigation into automobile imports decimates any argument that the administration is genuinely concerned about national security. The absurdity of the administration’s case, in turn, opens the door to abuse of the national security exemption by other countries. Adjudicating the national security exemption is also a no-win situation for the World Trade Organization. If it eventually rules against the U.S. use of Section 232, the Trump administration could choose to ignore the ruling, or even use it as an excuse to withdraw from the WTO, as Trump has threatened. And if the administration wins the argument, it would be no-holds-barred for other member states seeking to protect their own industries for specious national security reasons.

Short of the extreme step of withdrawal from the WTO, U.S. policies are still a serious threat to the organization’s continued effectiveness—and that is a cost that cannot be measured solely in dollar terms. On top of the serious economic toll, the ultimate cost of Trump’s trade wars will be measured in frayed bonds and eroded trust that will take years to rebuild.

Kimberly Ann Elliott is a visiting scholar at the George Washington University Institute for International Economic Policy, and a visiting fellow with the Center for Global Development. Her WPR column appears every Tuesday.

Source: World Politics Review “Why the Costs of Trump’s Trade Wars Will Linger for Years”

Note: This is World Politics Review’s article I post here for readers’ information. It does not mean that I agree or disagree with the article’s views.