Trump’s Tariffs, Once Seen as Leverage, May Be Here to Stay

WASHINGTON — President Trump’s tariffs were initially seen as a cudgel to force other countries to drop their trade barriers. But they increasingly look like a more permanent tool to shelter American industry, block imports and banish an undesirable trade deficit.

More than two years into the Trump administration, the United States has emerged as a nation with the highest tariff rate among developed countries, outranking Canada, Germany and France, as well as China, Russia and Turkey. And with further trade confrontations brewing, the rate may only increase from here.

On Tuesday, the president continued to praise his trade war with China, saying that the 25 percent tariffs he imposed on $250 billion worth of Chinese goods would benefit the United States, and that he was looking “very strongly” at imposing additional levies on nearly every Chinese import.

I think it’s going to turn out extremely well. We’re in a very strong position,” Mr. Trump said in remarks from the White House lawn. “Our economy is fantastic; theirs is not so good. We’ve gone up trillions and trillions of dollars since the election; they’ve gone way down since my election.”

He called the trade dispute “a little squabble” and suggested he was in no rush to end his fight, though he held out the possibility an agreement could be reached, saying: “They want to make a deal. It could absolutely happen.” Stock markets rebounded on Tuesday, after plunging on Monday as China and the United States resumed their tariff war.

Additional tariffs could be on the way. Mr. Trump faces a Friday deadline to determine whether the United States will proceed with his threat to impose global auto tariffs, a move that has been criticized by car companies and foreign policymakers. And despite complaints by Republican lawmakers and American companies, Mr. Trump’s global metal tariffs remain in place on Canada, Mexico, Europe and other allies.

The trade barriers are putting the United States, previously a steadfast advocate of global free trade, in an unfamiliar position. The country now has the highest overall trade-weighted tariff rate at 4.2 percent, higher than any of the Group of 7 industrialized nations, according to Torsten Slok, the chief economist of Deutsche Bank Securities. That is now more than twice as high as the rate for Canada, Britain, Italy, Germany and France, and higher than most emerging markets, including Russia, Turkey and even China, Mr. Slok said.

[A trade war with China could be long and painful.]

The shift is having consequences for an American economy that is dependent on global trade, including multinational companies like Boeing, General Motors, Apple, Caterpillar and other businesses that source components from abroad and want access to growing markets overseas.

While trade accounts for a smaller percentage of the American economy than in most other countries — just 27 percent in 2017, compared with 38 percent for China and 87 percent for Germany, according to World Bank data — it is still a critical driver of jobs and economic growth.

Mr. Trump and his economic advisers say the administration’s trade policy is aiding the American economy, companies and consumers. And despite the tough approach, the administration continues to insist its goal is to strike trade agreements that give American businesses better trade terms overseas.

At a briefing last week, Steven Mnuchin, the Treasury secretary, praised the president’s trade policies for helping economic growth thus far and said the administration supports “free and fair reciprocal trade.”

But if the goal really is freer trade, the administration has never been further from achieving that goal than it is today, said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

“They’re heading in the opposite direction,” Mr. Bown said.

Beyond an update to the United States agreement with South Korea, no other free trade deals have been finalized. Mr. Trump’s revisions to the North American Free Trade Agreement with Canada and Mexico still await passage in Congress, while trade talks with the European Union and Japan have been troubled from the start, with governments squabbling over the scope of the agreement.

Mr. Trump came into office fiercely critical of the failure of past administrations and global bodies like the World Trade Organization for failing to police China’s unfair trade practices. He withdrew the United States from multilateral efforts like the Trans-Pacific Partnership, a multicountry trade deal negotiated by President Barack Obama, and the Paris climate accord.

That shift has created an opening for other countries to step forward as global leaders, including Europe, Japan and China, despite its position as one of the world’s most controversial economic actors. On Tuesday, China submitted its proposals for overhauling the World Trade Organization, including broadening the privileges of developing countries, a status that China claims for itself.

Advocates of free trade fear that governments in India, China, South Africa and elsewhere might find Mr. Trump’s model of protectionism appealing and erect even higher barriers to foreign companies.

While the United States and China could still strike a trade deal that would roll back many of their tariffs, that likelihood has appeared to diminish in recent weeks.

Progress toward a deal came to a sudden halt this month when China backtracked on certain commitments and Mr. Trump threatened to move ahead with higher tariffs.

“We had a deal that was very close, and then they broke it,” he said on Tuesday.

The two sides continue to disagree over whether the deal’s provisions must be enshrined in China’s laws. But they are also arguing over Mr. Trump’s tariffs, which were intended to prod the Chinese to agree to more favorable trade terms for the United States. China insists those tariffs must come off once a deal is reached, but the Trump administration wants some to remain in place, to ensure China abides by its commitments.

In an interview on Tuesday on CNBC, Senator Marco Rubio, Republican of Florida, supported the administration’s tactics.

“Ideally, you wouldn’t have tariffs,” he said. But the United States already faces “all kinds of impediments” to gaining access to the Chinese marketplace, including tariffs, subsidization of industries and theft of intellectual property.

“We already have a series of hundreds of billions of dollars of Chinese penalties against the United States which are threatening our long-term viability,” Mr. Rubio said.

Canada and Mexico have repeatedly pressed the administration to lift its tariffs on steel and aluminum now that negotiations over the Nafta revision are done. The three countries signed the United States-Mexico-Canada Agreement in November, but the pact awaits passage in all three legislatures.

The Trump administration still views the tariffs as a source of leverage in case it needs to demand final changes to the deal from Canada and Mexico. But Canadian and Mexican officials — as well as many in Congress — say the levies are actually an impediment because all three legislatures will refuse to finalize the deal while they are in place.

A similar standoff could soon unfold with the European Union, which Mr. Trump has accused of being a “brutal trading partner” and being “tougher than China.”

The president, who wants Europe to open its markets to American farmers and companies, has already imposed tariffs on European metals and is threatening to levy a 25 percent tax on imports of European cars and car parts if the bloc does not give the United States better trade terms.

Europe has absorbed Mr. Trump’s steel and aluminum tariffs without too much damage. But car tariffs would strike the most important industry in Germany, which has the Continent’s biggest economy. European officials would regard car tariffs as a breach of a truce they worked out last year with Mr. Trump, and they have said they would refuse to negotiate as long as car tariffs were in place.

Cecilia Malmstrom, the European commissioner for trade, repeated on Monday that the European Union had prepared a list of American products worth $22.5 billion — including ketchup, suitcases and tractors — that would face immediate retaliatory tariffs.

“We’re prepared for the worst,” Ms. Malmstrom said in an interview with the Süddeutsche Zeitung newspaper in Germany.

European officials still hold out hope that Mr. Trump will see them as allies and not geopolitical rivals like the Chinese. And he could ultimately delay the decision and extend the Friday deadline for countries that are in trade talks with the United States.

But the president shows no signs of backing away from his stance that tariffs have helped the United States.

On Tuesday morning, Mr. Trump posted on Twitter that tariffs had rebuilt America’s steel industry and were encouraging companies to leave China, making it “more competitive” for buyers in the United States.

“China buys MUCH less from us than we buy from them, by almost 500 Billion Dollars, so we are in a fantastic position,” Mr. Trump tweeted. “Make your product at home in the USA and there is no Tariff.”

Partying Like It’s 1998

start with a country that, for whatever reason, became a favorite of foreign lenders, and experienced a large inflow of foreign capital over a number of years. Crucially, the debt thus incurred is denominated in foreign currency, not domestic (which is why the U.S., also a recipient of large inflows in the past, isn’t similarly vulnerable — we borrow in dollars).

.. Whatever the shock, the crucial thing is that foreign debt has made your economy vulnerable to a death spiral. Loss of confidence causes your currency to drop; this makes it harder to repay debts in foreign currency; this hurts the real economy and further reduces confidence, leading to a further decline in your currency; and so on.

.. Indonesia came into the ’90s financial crisis with foreign debt less than 60 percent of GDP, roughly comparable to Turkey early this year. By 1998 a plunging rupiah had sent that debt to almost 170 percent of GDP.

.. How does such a crisis end? If there is no effective policy response, what happens is that the currency drops and debt measured in domestic currency balloons until everyone who can go bankrupt, does. At that point the weak currency fuels an export boom, and the economy starts a recovery built around huge trade surpluses.

..  stop the explosion of the debt ratio with some combination of temporary capital controls, to place a curfew on panicked capital flight, and possibly the repudiation of some foreign-currency debt.

.. get things in place for a fiscally sustainable regime once the crisis is over.

.. Malaysia did this in 1998; South Korea, with U.S. aid, effectively did something like it at the same time, by pressuring banks into maintaining their short-term credit lines. A decade later, Iceland did very well with a combination of capital controls and debt repudiation (strictly speaking, refusing to take public responsibility for the debts run up by private bankers).

.. Argentina also did quite well with heterodox policies in 2002 and for a few years after, effectively repudiating 2/3 of its debt.

  • .. You need a government that is both
  • flexible and
  • responsible, not to mention
  • technically competent enough to implement special measures and
  • honest enough to carry out that implementation without massive corruption.

Trump’s Retreat From the West

Mr. Trump seems to have followed a blueprint for a resolution to the Korean conflict that China and Russia proposed a year before.

“The idea is to ensure a double freeze,” Russia’s foreign minister, Sergey Lavrov, said in an interview with NBC in Moscow on July 21, 2017. “North Korea suspends all their launches and tests, and in response, the U.S. and South Korea reduce the scale of their war maneuvers in the region.”

But all the meeting really accomplished was to open the prospect of new and probably lengthy negotiations for a final peace on the peninsula. Achieving that will depend on how the interests of five countries — North Korea, South Korea, China, Russia and the United States — can all be served.

North Korea and South Korea were created when World War II ended with Soviet troops occupying the northern part of the Korean Peninsula and American troops the south. After North Korea invaded the South in 1950, only to be driven back to China’s border by American-led forces, the fighting didn’t stop until after Chinese troops poured in and restored Communist control in the North.

.. A person of Mr. Putin’s age and experience cannot help seeing in Korea a likeness to a divided Germany. Having served in East Germany as a K.G.B. officer, Mr. Putin was deeply dismayed at the Soviet Union’s decision nearly three decades ago to give up control of what had been the Communists’ East Bloc. Today, his most powerful narrative of grievance is of the West expanding its institutions — especially NATO — to Russia’s western border. He would surely be loath to see the West achieve a matching situation at its eastern door.

..  Mr. Putin, speaking to Chinese reporters in Qingdao, called Mr. Trump’s decision to meet Mr. Kim “very brave and mature.”
.. It is likely that without Mr. Xi’s nod, Mr. Kim would not have met with Mr. Trump. And China may have kept its distance and let the American president steal the spotlight, hoping that a peaceful North Korea colonized by Chinese, Russian and American businesses might emerge and make an American military presence on the peninsula irrelevant
.. Mr. Trump’s foreign policy vision ignores concerns about other countries’ political structures as long as a deal can be reached. He clearly prefers bilateral deals to multilateral accords. He enjoys politics that are personal rather than institutional.

President Trump, Deal Maker? Not So Fast

His 17 months in office have in fact been an exercise in futility for the art-of-the-deal president.

  1. No deal on immigration.
  2. No deal on health care.
  3. No deal on gun control.
  4. No deal on spending cuts.
  5. No deal on Nafta.
  6. No deal on China trade.
  7. No deal on steel and aluminum imports.
  8. No deal on Middle East peace.
  9. No deal on the Qatar blockade.
  10. No deal on Syria.
  11. No deal on Russia.
  12. No deal on Iran.
  13. No deal on climate change.
  14. No deal on Pacific trade.

.. Even routine deals sometimes elude Mr. Trump, or he chooses to blow them up.

.. “Trump is an anarchist,” said Jack O’Donnell, a former president of the Trump Plaza Hotel and Casino, who became a sharp critic. “It was his approach in business, it is his approach as president. It does not take good negotiating skills to cause chaos. Will this ever lead to concessions? Maybe, but concessions to what? Not anything that resembles a deal. I just do not see him getting much done.”

.. I don’t think it’s that counterintuitive to say that playing hardball will lead to better trade deals eventually,” said Andy Surabian, a Republican strategist and former aide to Mr. Trump.

.. We’ll see what the final outcome is, but it’s already a success just to get them to the table.”

.. the major tax-cutting package that passed late last year. But even that was negotiated mainly by Republican lawmakers, who said Mr. Trump did not seem engaged in the details.

.. And as legislative challenges go, handing out tax cuts without paying for them is not exactly the hardest thing that politicians do.

.. In effect, the agreement with Mr. Kim is like a deal to sell parts of Trump Tower without settling on a price, date, inspection or financing. It is not nearly as advanced as agreements that President Bill Clinton and Mr. Bush made with North Korea, both of which ultimately collapsed.

.. But no modern president has sold himself on the promise of negotiating skills more than Mr. Trump has. He regularly boasts that deals will be “easy” and “quick” and the best ever.

.. He has pulled out of Mr. Obama’s Iran nuclear deal, Paris climate accord and Trans-Pacific Partnership, but promises to negotiate better versions of those deal have gone nowhere.

.. Mr. Trump set his sights on what he called “the ultimate deal,” meaning peace between the Israelis and Palestinians. He said it was “frankly maybe not as difficult as people have thought.” A year later, his team is only now preparing to release a plan.

.. “What the president seemingly fails to understand is that in foreign policy and in trade policy — unlike in real estate transactions — the parties are all repeat players,” 

.. “The country you insult or seek undue advantage over today you will have to work with again tomorrow.”

.. Mr. Trump’s approach so far has been to make expansive demands and apply as much pressure as he can. He argues that crushing sanctions he imposed on North Korea forced Mr. Kim to meet. He now hopes to extract concessions from China, Canada and Europe after slapping punishing tariffs on them.

.. “Trump is a bilateral player, in part because that’s what he is used to from his building days, but also because he keeps himself the king, the decider, the strongman,” said Wendy Sherman, who was Mr. Obama’s lead negotiator on the Iran nuclear deal. “In the case of North Korea, however, he wouldn’t have gotten this far — which isn’t all that far — without the South Koreans or the Chinese.”

..  When he gave up on immigration on Friday, he blamed it on Senate Democrats, even though the immediate impasse was among House Republicans who do not need the other party to pass a bill.

.. “Republicans should stop wasting their time on Immigration until after we elect more Senators and Congressmen/women in November,”

.. It was in effect an acknowledgment by Mr. Trump that he cannot reach across the aisle and can only govern with Republicans.

.. the challenge on immigration is that the president has to grapple not just with Democrats but also with Republicans who do not share his philosophy on the issue.

.. Mr. O’Donnell, the former casino president, said Mr. Trump has always oversold his deal-making skills. The casino he managed, Mr. O’Donnell noted, brought in $100 million a year yet still went bankrupt.

.. “The fact is, Trump casinos should have been one of the greatest success stories in the history of casino gambling, but bad deal making caused him to lose all three properties,” he said.

U.S. allies see Trump’s steel tariffs as an insult

No world leader has tried harder to get on President Trump’s good side than Japanese Prime Minister Shinzo Abe. Whether racing to New York the day after the 2016 election and presenting Trump with a $3,755 gold-plated golf driver, or taking him out on the golf course and serving hamburgers for lunch, Abe has cultivated a close personal relationship with his American counterpart.

.. But now, Japan, which is not just led by a friendly politician but also is a key security ally of the United States, looks likely to be slapped with tariffs on its steel exports to the United States. And to add insult to injury, the reason, Trump says, is rooted in national security.

“The U.S. is suddenly treating Japan as a target,” said Tsuyoshi Kawase, a professor of international trade policy at Sophia University in Tokyo. “The Japanese side is bewildered and confused.”

.. countries that figured, no matter the bumps in relations with Washington, they would wind up on the same side against China in any dispute over steel or unfair trade practices. And yet suddenly there is talk of a trade war between the United States and its supposed friends.
.. Even those leaders who have grown accustomed to the zigs and zags of the Trump White House say this could be different. The consequences of Trump’s targeting other priorities — the Paris climate agreement and the Iran nuclear deal chief among them — have not had an immediate, concrete effect. But the tariffs could soon put citizens in ally nations out of work, and if a trade war escalates, all sides could feel the pain, officials from Brasília to Brussels to Seoul say.“The impulsiveness of the decision caught us by surprise,” said Diego Bonomo, the head of foreign trade at the National Trade Association of Brazil. His country is the second-largest exporter of steel to the United States.

“It’s an economic shot in the foot,” he said. “When they impose tariffs to hurt Brazilian steel, they hurt their own coal exports and exports of products that use steel.”

.. Trump’s order came hours after Japan and 10 other countries formalized a new Pacific free-trade agreement

.. The announcement also upended a Saturday meeting of the top U.S., E.U. and Japanese trade negotiators, who were originally scheduled to convene to talk about how to take on what they say is China’s unfair support for its steel industry. Instead, officials say, the meeting may turn out to be the first salvo in an unfolding and escalating trade skirmish.

.. The frustration is compounded by Trump’s national security rationale. In fact, say U.S. allies, there is no national security risk to importing steel and aluminum from one’s closest military partners. And any move that damages their own industries also hits at overall NATO readiness and hurts trust among allies, they say.

.. But that response could backfire, some analysts say. If the WTO rules against the White House, and Trump chooses to ignore the ruling, that could effectively spell the end of the organization.

.. “To be honest, everyone kind of agrees with us,” said the official, who spoke on the condition of anonymity to discuss closed-door European efforts. “I haven’t found anyone who says, ‘No no, the president is right.’ ”

.. The prospect of steel tariffs follows on the heels of similar levies on solar panels and washing machines. But it comes at a sensitive time on the front of North Korean diplomacy.

..  tariffs could have a “negative impact on South Korea-U.S. relations,”

.. Many in Japan worry that Trump’s effort may ultimately undermine global security, not bolster it.

“When trade friction grows between allies, the alliance is weakened,” Watanabe said. “But it’s unclear if Trump understands that.”

Trade Wars Are Destructive. Of Course Trump Wants One.

.. as with so many other policies he has supported, he appears to have little understanding of this one.

.. Many White House aides, including Mr. Trump’s chief economic adviser, Gary Cohn, appeared to be caught off guard by the decision; on Wednesday, Mr. Cohn had warned that he might resign if Mr. Trump went through with the tariff plan.

.. The stock market fell sharply after the announcement because investors feared that the move was the first of several that could result in escalating disputes

.. The steel and aluminum tariffs are ostensibly aimed at punishing China, which has been driving down prices for those commodities by producing far more metal than the world can use. But Mr. Trump’s move will have a limited effect on China because much of the steel and aluminum the United States imports actually comes from allies like Canada, Brazil, South Korea and Mexico.

.. the move could hurt American businesses that use these metals, including auto and construction companies

.. If Mr. Trump were truly interested in getting China to reduce its excess production, he would have worked with the European Union, Canada, Japan, South Korea and other countries to put pressure on Beijing. Those nations tend to be closely aligned with the United States and have also been hurt by China’s mercantilist economic policies.

.. threatening to retaliate forcefully against the new Trump tariffs. They could do so by bringing cases against the United States at the World Trade Organization, or by doing what Mr. Trump did and unilaterally imposing new tariffs on American exports like soybeans and Boeing planes.

.. Canada imports more American Steel than it exports to the United States, giving it the ability to hurt the very industry Mr. Trump claims to want to help.

.. Chrystia Freeland, says Canada buys about half of American steel exports.

.. for every new job at a steel mill or aluminum smelter that is created by this trade decision, the country could lose as many or more jobs at businesses that use those metals, which will now cost more. This is one of the reasons that trade wars are, in fact, not easy to win.

.. Mr. Trump clearly sees trade as a zero-sum game.

.. He and some of his most protectionist advisers, including Peter Navarro, think that if China and Mexico sell the United States more things than they import from America, they are winning.

 

Military Quietly Prepares for a Last Resort: War With North Korea

And beginning next month with the Winter Olympics in the South Korean town of Pyeongchang, the Pentagon plans to send more Special Operations troops to the Korean Peninsula, an initial step toward what some officials said ultimately could be the formation of a Korea-based task force similar to the types that are fighting in Iraq and Syria.

.. President Trump’s own words have left senior military leaders and rank-and-file troops convinced that they need to accelerate their contingency planning.

.. In perhaps the most incendiary exchange, in a September speech at the United Nations, Mr. Trump vowed to “totally destroy North Korea” if it threatened the United States, and derided the rogue nation’s leader, Kim Jong-un, as “Rocket Man.” In response, Mr. Kim said he would deploy the “highest level of hard-line countermeasure in history” against the United States, and described Mr. Trump as a “mentally deranged U.S. dotard.”

.. on Jan. 2, Gen. Tony Thomas, the head of the Special Operations Command in Tampa, Fla., warned the 200 civilians and service members in the audience that more Special Forces personnel might have to shift to the Korea theater from the Middle East in May or June, if tensions escalate on the peninsula.

.. Military officials said General Milley has cited the ill-fated

  • Battle of the Kasserine Pass during World War II, when unprepared American troops were outfoxed and then pummeled by the forces of Field Marshal Erwin Rommel of Germany. General Milley has also recently mentioned
  • Task Force Smith, the poorly equipped, understrength unit that was mauled by North Korean troops in 1950 during the Korean War.

.. fretted about a loss of what he has called muscle memory: how to fight a large land war, including one in which an established adversary is able to bring sophisticated air defenses, tanks, infantry, naval power and even cyberweapons into battle.

.. There have been no travel warnings advising Americans to stay away from South Korea or Japan, and no advisories warning American businesses to be cautious.

.. It is unlikely that the Pentagon would launch military action on the Korean Peninsula without first warning Americans and others there, military officials said — unless the Trump administration believes that the United States could conduct a one-time airstrike on North Korea that would not bring any retaliation from Pyongyang to nearby Seoul.

.. Some officials in the White House have argued that such a targeted, limited strike could be launched with minimal, if any, blowback against South Korea — a premise that Mr. Mattis views with skepticism,

.. But for Mr. Mattis, the planning serves to placate Mr. Trump.

.. protects Mr. Mattis from suggestions that he is out of step with Mr. Trump.

.. The maneuvers were aimed at forcing an enemy to fight on different fronts early in combat.

.. Officials said maneuvers practiced in the exercise, called Panther Blade, could be used anywhere, not just on the Korean Peninsula.

.. Another exercise, called Bronze Ram

.. Air Force B-1 bombers flying from Guam have been seen regularly over the Korean Peninsula

..  B-52 bombers based in Louisiana are expected to join the B-1s stationed on Guam later this month

.. three B-2 bombers and their crews had arrived in Guam from their base in Missouri.

.. unlike the very public buildup of forces in the run-up to the 1991 Persian Gulf war and the 2003 Iraq war .. the Pentagon is seeking to avoid making public all its preparations for fear of inadvertently provoking a response by Mr. Kim

.. “I’ll also add that right now, the Defense Department is in support of Secretary of State Tillerson, who’s got a campaign to be the lead with North Korea in a diplomatic endeavor,” General Jamieson said.