1st of a 3-Part Series
Trump’s
trade team heads off to Beijing this week of May 2018 to attempt to
negotiate terms of a new US-China trade deal. The US decision whether
to continue the exemptions on Steel and Aluminum tariffs with the
European Union occurs comes due this week as well. And this past week
Trump also declared “we’re doing very nicely with NAFTA”.
So what’s all
the talk about a Trump ‘trade war’? Is it media hype? Typical Trump
hyperbole? Is there really a trade war in the making? Indeed, was there
ever? And how much of it is really about reducing the US global trade
deficit—and how much about the resurrection of Trump’s ‘economic
nationalism’ theme for the consumption of his domestic political base in
an election year?
One thing for certain, what’s underway is not a ‘trade war’.
Trump
announced his 25% steel and 10% aluminum tariffs in early March, getting
the attention of the US press with his typical Trump bombast,
off-the-wall tweets and extremist statements. The steel-aluminum tariffs
were originally to apply worldwide. But the exemptions began almost
immediately. In fact, all US major trading partners were quickly
suspended from the tariffs—except for China.
By mid-March,
Canada and Mexico were let off the tariff hook, even though they were
among the top four largest steel importers to the US, with Canada
largest and Mexico fourth largest. Thereafter, Brazil (second largest
steel importer), Germany, and others steel importers were exempted as
well.[1]
And Canada, by far the largest aluminum importer to the US, accounting
for 43% of US aluminum imports, was exempted for imports of that
product.
South Korea ‘Softball’ Trade Template
The Trump
administration’s signal to its allies was the US-South Korea deal that
soon followed. The South Koreans were pitched a ‘softball’ trade deal.
South Korea, the third largest US steel importer last year, was exempted
from steel tariffs, now permanently as part of the final deal. So much
for steel tariffs. Moreover, no other significant tariffs were imposed
on South Korea as part of the bilateral treaty revisions. No wonder the
South Koreans were described as ‘ecstatic’ about the deal.
What the US
got in the quickly renegotiated US-South Korea free trade deal was more
access for US auto makers into Korea’s auto markets. And quotas on
Korean truck imports into the US. Korean auto companies, Kia and
Hyundai, had already made significant inroads to the US auto market. US
auto makers have become dependent on US truck sales to stay afloat; they
didn’t want Korean to challenge them in the truck market as well.
Except for these auto agreements, there were no major tariffs or other
obstructions to South Korea imports to the US. Not surprising, the South
Koreans were ecstatic they got off so easily in the negotiations.[2]
Clearly, the US-South Korea deal had nothing to do with Steel or
Aluminum. If anything, it was a token adjustment of US-Korea auto trade
and little more.
So the Korean
deal was a ‘big nothing’ trade renegotiation. And so far as US trade
deficits are concerned, steel-aluminum imports are insignificant.
Steel-aluminum tariffs do nothing for the US global trade deficit. US
steel and aluminum imports combined make up only $47 billion—a fraction
of total US imports of $2.36 trillion in 2017.
The
steel-aluminum tariffs were more of a Trump publicity tactic, to get the
attention of the media and US trade allies. And if the tariffs were
the signal, then the South Korea deal is now the template. It’s not
about steel or aluminum tariffs. But you wouldn’t know that if you
listened to Trump’s speech in Pennsylvania. Canada and Mexico import
more steel to the US than South Korea. But in a final NAFTA revision
they too will be virtually exempted from steel-aluminum tariffs when
those negotiations are completed.
NAFTA as South Korea Redux
According to
reports of the NAFTA negotiations, most details have already been
negotiated with Mexico and Canada and the parties are close to a final
deal. Typical of the ‘softball’ US approach with NAFTA—like South
Korea—is the US recent dropping of its key demand that half the value of
US autos and parts imported to the US be made in the US. That’s now
gone. So a deal on NAFTA is imminent. Certainly before the Mexican
elections this summer. But it will have little besides token adjustments
to steel or autos. Trump threats to withdraw from NAFTA were never
real. They were always merely to tell his base what they wanted to hear.
For what Trump
wants from NAFTA is not a significant reduction of steel, auto, or any
other imports to the US. What the US wants is more access for US
corporations’ investment into Mexico and Canada; more protection for
patents of US pharmaceutical companies to gouge consumers in those
countries like they do in the US; and a shift in power to the trade
dispute tribunals favoring the US. He’ll sell the exaggerated token
adjustments to his political base, which will applaud his latest,
inflated ‘fake news’—while the big corporations and financial elites in
the US will silently nod their heads in agreement for the incremental
gains he’s obtained for them.
In the most
recent development concerning NAFTA negotiations, Trump has extended the
deadline for a final revision for another thirty days—a development
which means the parties are very close to a final resolution. The
revisions will most likely look like the South Korean deal in many
details—with quotas (not tariffs) on auto parts trade and more US access
for US business investment and token limits on imports to the US.
Launching US-Europe Trade Negotiations: Macron’s Visit/Merkel’s Snub
After NAFTA
comes Europe, later this year and in 2019. Like the NAFTA negotiations,
Europe deadlines on steel and aluminum tariffs were just extended
another thirty days. That’s just the beginning of likely further
extensions. Europe will be less amenable to steel, aluminum or any other
tariffs than the US NAFTA or South Korean partners. French president
Macron’s visit last week to the US should be viewed as the opening of
negotiations on trade between the US and Europe. But the European
economy is again weakening and France, Germany, the UK and others are
desperate to maintain export levels, which is the main means by which
they keep their economies going.
Europe also
wants to keep the Iran Deal in place, which means important exports and
trade for it, while Trump wants to end the deal as he’s promised his
domestic political base. A tentative agreement may have been reached
between Trump and Macron during the latter’s recent visit to the US:
Trump will formally pull the US out of the Iran Deal by May 12 but then
will do nothing real apart from the announcement—much like the US
withdrawal from the Climate Treaty. Europe will continue its trade deals
with Iran. The US and Europe will then jointly try to negotiate an
addendum with Iran. In short, France and Europe get to keep their
business deals and Trump gets to pander to his political base before the
elections in November. Like the Europe steel-aluminum tariff exemptions
due this week, that announcement will soon follow as well within a
week.
While Macron
was treated like royalty by Trump during his visit to the US, German
Chancellor Merkel, who followed within days, was treated more like a
minor partner and snubbed. The snubbing wasn’t about trade, however.
It was more about Germany’s refusal to participate in the Syrian
bombings, as well as US dislike for the growing resistance in Germany to
go along with extreme economic sanctions on Russia. Long run, what the
US has always wanted from Germany is to substitute US natural gas
imports (which the US now has a surplus due to fracking technology) for
Russian gas and for Germany to stop building gas pipelines with Russia.
Trump will likely focus on political concessions from Europe while
seeking only token changes to imports from Europe to the US. In other
words, the content of a US-Europe trade deal may differ from NAFTA of
South Korea but the ‘form’ will remain dominated by token adjustments,
with little net import reduction to the US.
The UK economy
is slowing rapidly, German industrial production has slowed in the last
three of four months. And signs are accumulating that globally trade,
upon which Europe is especially dependent, is slowing once again. The UK
in particular is an economic basket case. Brexit negotiations are in
shambles. And the Conservative Party’s days are numbered. Trump
therefore will not demand extreme concessions from the UK. Nor will he
from the rest of Europe, also now slowing economically—though not as
severe as the UK—and important to Trump-US interests in concluding any
trade deal with China, providing cover for US policy in the middle East,
and with regard to Russian sanctions and US support for a collapsed
Ukraine. Politics will dictate token trade adjustments with Europe.
Trump’s Political Objectives
Except for the
case of China, therefore, the Trump trade war is mostly tough talking
trade for show. Trump wants some token concessions from its US allies
trading partners. Token concessions he can then ‘sell’ to his political
base in an election year. He’s playing to his ‘America First’ economic
nationalist political base, agitating it for electoral purposes next
November. He is in election mode, giving campaign speeches throughout
the US as if this were September 2016 again. He may also be mobilizing
that base in anticipation of the eventual firing of Mueller he plans and
the political firestorm that may provoke from the traditional elites in
the US. He’s given them massive tax cuts and now some gains from trade
negotiations without upsetting the global capitalist trade structure he
once promised to do.
Trump is
betting that delivering on taxes and trade to the elite will keep enough
of them at bay. While delivering on immigration, the wall, and hyped
(but phony) trade deals with US allies will convince his ‘America First’
political base he’s delivering for them as well. The so-called trade
war is phony because it is designed to produce token adjustments to US
trade relations with allies, which Trump will then inflate, exaggerate
and lie about to his domestic political base, as they fall for his
economic nationalism theme once again.
Is China the Trade Target?
But where does
that leave US-China trade? Certainly many believe that is headed for a
‘trade war’. Tit-for-tat $50 billion tariffs have been levied by both
the US and China on each other. Trump has threatened another $100
billion and China has said it will similarly follow suit. Even the
products to be tariffed have been identified—the US targeted a wide
range of imports from China and China in turn targeting US agricultural
products and other industrial goods from the US Midwest, and thus
Trump’s political base.
Trump’s trade
team is by now in Beijing. It represents the major interest groups of
Trump’s administration: Treasury Secretary Mnuchin—the bankers and big
US multinational corporations. Trade representative hardliners, Robert Lighthizer and Peter Navarro—the Pentagon and US war production industries. And Larry Kudlow
the Trump administration’s economic nationalists. Will the Trump phony
trade war apply to China as well? Or will it be an actual economic war?
Is it really about reducing the US $375 billion annual trade deficit
with China? Or about US bankers wanting more access and ownership of
operations in China? Or is it about China’s attempt to technologically
leapfrog the US in the next generation war-making and cyber security
software capability?
*
The second part of this three part series will address the China-US element of Trump trade policy and strategy.
Jack Rasmus
is author of the recently published book, ‘Central Bankers at the End
of Their Ropes: Monetary Policy and the Coming Depression’, Clarity
Press, August 2017. He blogs at jackrasmus.com and his twitter handle is
@drjackrasmus. His website is http://kyklosproductions.com.
Dr. Rasmus is a frequent contributor to Global Research.
Notes
[1] Shawn Donnan, “Trump Softens Steel Stance, With Exemptions for ‘Real Friends’”, Financial Times, March 9, 2018, p. 1
[2] Alan Rapaport and Prashad Rao, “South Korea, Looking to Avoid Tariffs, Agrees to US Trade Deal”, New York Times, March 27, 2018, p. 7.
The original source of this article is Global Research
Copyright © Dr. Jack Rasmus, Global Research, 2018