US President Donald J. Trump signed a tariff proclamation March 8 at the White House, including a series of carefully-crafted exemptions for NAFTA partners Canada and Mexico as well as the possibility for other allies to negotiate exemptions. Although this was not an Executive Order and thus not yet set in stone, the new tariffs were announced at 25% on steel and 10% on aluminium imports and are set to go into effect in 15 days for all countries not ultimately excluded.
Trump specifically excluded Canada and Mexico while NAFTA is being renegotiated and left an undefined amount of “wiggle room” for other US allies to negotiate tariff exemptions based on bilateral trade consultations as well as their military spending for shared alliance defence. China was singled out for extensive trans-shipments and trade displacement in these products on a global basis, causing a substantial shift in third country steel exports to the US which had to be addressed.
The tariff announcements were absorbed domestically as something less than a tsunami. US markets had meandered for most of the day until the special NAFTA exemption news circulated an hour or so before Trump’s television appearance. The DJIA then moved upwards to close at 24,895, up 0.38%, with the Dollar-Euro exchange rate essentially unchanged.
Other than the planned resignation of the US National Economic Council Chair Gary Cohn that was announced on March 6, the US Federal Government is for now holding together after the tariff announcements, and key officials are talking tough. By resigning over the tariff issue, Cohn has probably secured himself the highest possible position for the “righteous resignation” award from the Trump Administration to-date, but final judgement must await the results of the next weeks of bilateral negotiations with key US allies.
Republican Senator Jeff Flake of Arizona reaffirmed his already-announced plans to immediately introduce legislation invalidating Trump’s tariff plans. House Speaker Paul Ryan had also previously voiced strong disagreement with the tariff plan, opting for targeted retaliation against countries found dumping.
It seems Congress was already upset with Cohn’s departure, at least according to Washington press coverage. “When it came to economic issues — and, to be frank, even beyond — he was our security blanket,” CNN noted from Washington on March 7, quoting a senior Republican congressional aide. The essential point is that even Trump’s Republican allies have been left wondering who they can count on other than his cabinet secretaries (Wilbur Ross, Steve Mnuchin) regarding overall trade and economic policy in an increasingly “hollowed out” Trump Administration and where a senior official with any kind of globalist perspective might be suddenly left standing alone.
In February, a senior Chinese delegation led by President Xi Jinping’s top economic adviser Liu He reportedly had serious trouble lining up the right Washington interlocutors for bilateral trade and economic talks. For now, observers note that the weight of defending a multilateral rule-based system rests on the few globalists working in the Trump Administration, Defense Secretary James Mattis, Secretary of State Rex Tillerson and Treasury Secretary Mnuchin.
It is going to take several days for key US trade partners and trade blocs to digest Trump’s message and open “exemption’ discussions with US Trade Representative Ambassador Robert Lighthizer, who will probably become the planet’s most sought-after American interlocutor for the rest of this month at least. Coincidentally, EU Trade Commissioner Malstrom has a previously-scheduled meeting with Ambassador Lighthizer on March 10. But are we that close to a global trade war? Perhaps not yet, but the risks should not be downplayed.
Prophetic perhaps was the warning from the World Trade Organization Director-General Roberto Azevedo earlier this week “An eye for an eye will leave us all blind and the world in deep recession.”