Trade: First, President Trump hit China, Canada, Mexico and the EU with trade tariffs. Now, the world is hitting back. Will a burgeoning trade war with our closest trading partners be the undoing of global free trade and Trump's own domestic agenda? Don't count on it. Here's the action so far: President Trump already slapped 10% to 25% tariffs on aluminum and steel imports. In retaliation, Canada has hit U.S. imports with an estimated $12.6 billion in tariffs in retaliation. Next, some $50 billion in tariffs on Chinese goods are set to go into effect later this week, which China vows will not go unanswered.
Meanwhile, Trump is also threatening tariffs on European Union autos, a severe sore spot for the EU. It says it will levy $300 billion in tariffs on U.S. autos and other goods — that's not a misprint — if Trump's tariffs go into place.
And Trump has taken it even a step further. As Axios reports, the White House has even threatened to push legislation to "blow up" the World Trade Organization by getting rid of its two most basic rules: One, the "Most-Favored-Nation" principle, under which all countries in the WTO get the same tariff treatment as others; and, two, "Bound Tariff Rates," under which already-negotiated tariff ceilings can't be removed unilaterally.
This might sound like a lot of technical mumbo-jumbo, but it isn't. Most of the world's tradable goods come under WTO rules. Eliminating the rules overnight would be destabilizing to the world economy, to say the least. It's one of the big reasons why global financial markets have been on such a roller-coaster ride in recent months.
Major U.S. companies (like Harley-Davidson), the U.S. Chamber of Commerce and even some Senate Republicans — usually allied with Trump on most issues — have issued strong denunciations of Trump's tariffs and plans to exit the WTO.
But if Trump worries about the reactions from Congress and overseas, he doesn't let on. He promised explicitly to raise tariffs during his election campaign. And if Trump has shown Americans anything since entering office in January of 2017, it's that he's dead-set on keeping his promises.
"Any country that devalues their currency to take unfair advantage of the United States and all of its companies that can't compete will face tariffs and taxes to stop the cheating," Trump said in 2016.
So, yes, Trump is serious about tariffs. But what's also clear is that any extreme moves on trade can by stymied in Congress.
There's already a move afoot in the Senate, led by Republicans Bob Corker and Pat Toomey and Democrat Michael Bennet to get rid of Trump's steel and aluminum tariffs. They'll stand on solid legal ground. Article 1 of the Constitution gives Congress, not the White House, power to regulate trade, including tariffs.
Moreover, Congress approved of the creation of the World Trade Organization. So pulling out of the WTO or changing it beyond recognition would require Trump to win a vote in Congress.
It ain't going to happen.
So what's Trump's aim here? Trump isn't just tariff-happy. And he doesn't just hate the WTO to hate the WTO. There's an endgame he has in mind.
So what is it? He wants nothing more than for other countries that have highly favorable trade deals through the WTO and U.S. trade agreements to level the playing field a bit. Ultimately, if the gambit works, free traders should be happy. It will actually make trade freer and fairer, rather than treating obsolete trade agreements as if they were an eternally fixed part of Mosaic law.
Andy Puzder, who served as CEO of CKE Restaurants for 16 years, explained the dynamic in a recent opinion piece.
"With a trade deficit over $500 billion running in their favor, we need to create incentives for our trading partners to renegotiate our current relationships," Puzder wrote. "That's because nations — like people — rarely give up economic benefits they've grown used to having simply because doing so would be fair. They operate in their self-interest.
As noted, the WTO has quite effectively lowered average overall tariffs and trade barriers on many goods and services. It's been a huge success in that respect. But deals made through the WTO have also frozen in place existing unfair advantages that the U.S. agreed to give to Europe, Asia, Mexico and others to help develop their economies.
It was a noble act, one for which our major trade partners give the U.S. little or no credit. Last year the U.S. had an overall goods deficit of $810 billion, an enormous amount. That was reduced to an overall deficit of about $568 billion, thanks to exports of services and high-tech. Whether free trade advocates acknowledge it or not, large swathes of the industrial Midwest got decimated by those deficits.
Donald Trump promised them relief and hope. He's now keeping that promise, at least rhetorically. Whether tariffs or anything else can ever "re-industrialize" the Midwest is an open question.
As we've written here many times, we take a back seat to no one on free trade. And we don't like tariffs. Period. They're a tax on consumers and producers. We'd like to see them all go. We believe in truly free trade.
That said, highly regulated trade, with tariffs fixed to our disadvantage in semi-perpetuity, cannot be called free trade. That means we need to change past trade deals. That includes NAFTA and the many WTO trade deals that are no longer fair. Trump's doing that.
In that sense, despite the anti-Trump rhetoric on trade both here and abroad, the president may in fact be doing free trade the biggest favor of all: He's taking it seriously.
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