Trade Wars: Trump’s Latest Injury to the Economy

Every day it's a new crazy

Donald Trump has escalated the threat of a trade war with Europe, warning that the US will slap a tax on cars made on the continent if the European Union (EU) retaliates against tariffs on imports of steel and aluminum.

The president made a surprise announcement this week that he intends to impose a 25% tariff on steel and 10% on aluminum in an attempt to protect US industry.

The European commission president, Jean-Claude Juncker, said the bloc was prepared to respond forcefully by targeting US imports such as Harley-Davidson motorbikes, Levi’s jeans and Kentucky bourbon whiskey.

On Saturday Trump hit back in typical style, writing on Twitter: “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!”

In another tweet, the president railed against “very stupid” trade deals by earlier administrations and said other countries “laugh at what fools our leaders have been. No more!”

Trump has previously attacked car manufacturers in Europe, especially in Germany, with which the US has a huge trade deficit. Last year, in an interview with the German newspaper Bild, he criticised companies such as BMW, Daimler and Volkswagen for failing to produce more cars on US soil and threatened a border tax of 35% on vehicles imported to the US market.

A few months later, at a closed-door meeting with EU officials in Brussels, he was quoted by Der Spiegel as saying: “The Germans are bad, very bad. Look at the millions of cars that they sell in the US. Terrible. We’re going to stop that.”

BMW, Daimler and Volkswagen operate some of their biggest factories in southern, Republican-leaning US states. German carmakers employ about 33,000 workers in the US and German automotive suppliers about 77,000 more, according to Germany’s automotive industry association.

Cosette Creamer, an assistant professor of political science and trade expert at the University of Minnesota, noted that Trump’s proposals remain vague.

“The administration has not indicated which types of steel and aluminum the proposed tariffs will cover, or whether there will be any exemptions or carve-outs for certain types of steel/aluminum imports or for certain countries,” she wrote in an email on Saturday.

“All that being said, engaging in escalatory trade war rhetoric – even (and particularly) if you don’t end up following through – is damaging for our diplomatic relations with our allies. Moreover, ‘taxes on cars made in Europe’ won’t impact European firms much since many of these companies assemble or manufacture their cars either in the US or Mexico.”

Creamer added: “It seems to me that if these tariffs are imposed across the board, the detrimental impact on Europe will come not so much from the direct tariffs on steel imported from EU countries (which is actually a small fraction of our steel imports). Rather it will come from the de-stabilising effects on the European market caused by the flooding of steel from countries that would have otherwise exported to the US.”

Trump campaigned on an “America first” agenda of economic nationalism, promising to bring jobs back. But his latest move was, according to NBC News, a knee-jerk reaction born of anger during another tumultuous week at the White House. He followed up with a tweet that said trade wars were “easy to win”, rattling US financial markets.

The plan breaks from Republican orthodoxy on free trade and has left members of Congress scrambling. They warned that a trade war would hurt US companies and wipe out recent economic gains. Canada has said it will retaliate for any tariffs on steel and aluminum.

The Arizona senator John McCain tweeted: “The president’s sweeping tariffs will only serve to hurt American workers and consumers, and alienate us from our most important allies and trading partners.”

Michael Steele, former chairman of the Republican National Committee, said: “Our allies are sitting and going, ‘What the hell is your problem?’”

On Friday the Swedish appliance maker Electrolux said plans for a plant expansion in Springfield, Tennessee had been put on hold because of Trump’s announcement.

“Unfortunately, this decision gives foreign appliance manufacturers a cost advantage that is hard to compete against,” spokeswoman Eloise Hale said in a statement to the Tennessean newspaper.

There was also a chorus of media criticism. Rupert Murdoch’s Wall Street Journal, normally supportive of the president, commented: “Protectionism may be his only real policy conviction, and his tweet confirms he doesn’t know what he’s talking about.”

The White House announced on Friday that Trump had held calls with the German chancellor, Angela Merkel, and French president, Emmanuel Macron. The leaders discussed Syria and Russia, according to an official statement that made no mention of trade.