Business Analysis

First casualty of Trump's trade war is his country's reputation: Don Pittis

Countries that thought of themselves as longtime friends of the U.S. plan to fight back

March 06, 2018

U.S. President Donald Trump announces the U.S. will impose tariffs of 25 per cent on steel imports and 10 per cent on aluminum. (Kevin Lamarque/Reuters)

Can the United States be trusted anymore?

When we hear about President Donald Trump's latest overnight tweets on trade, the first reaction of most Canadians is to think about how it's going to affect us.

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Evidently having a trade war with our biggest trade partner would not be a good thing for the Canadian economy.

But there is growing evidence the greatest victim of Trump's erratic and seemingly never-ending demands over trade will be the reputation of the United States.

A real danger

"The danger's real and it's not just the rhetoric of the tweets," said Peter Warrian of the University of Toronto's Munk School of Global Affairs, where he is billed as "Canada's leading academic expert on the steel industry."

He says if Trump's 25 per cent tariff on steel and 10 per cent tariff on aluminum are imposed as an executive order they could have an impact within a week, with truckloads of Canadian steel held at the border until the U.S. government receives a cash payment to cover the tariff.

Even if the decision is eventually overturned, the disruption to two of North America's key industries, steel and automobiles, would be costly.

And once again, countries around the world who thought of themselves as friends and allies of the U.S. are considering how they will fight back.

A bottle of Bulleit Kentucky bourbon at the Spirit de Milan cafe in Milan, Italy. Europe says the whiskey will be a target of retaliation if Trump goes ahead with his tariff plans. (Stefano Rellandini/Reuters)

"If someone sticks it to you on aluminum and steel, if you're going to retaliate, you're not restricted to those sectors," Warrian said.

Clearly, if cooler heads prevail, things could stop short of a trade war. What you might call trade sabre-rattling is not uncommon as countries threatened with tariffs draw up lists of the imports they will tax in response.

Europe has already included Kentucky bourbon, Levi's jeans and Harley Davidson motorcycles — goods they expect will have a concentrated impact on jobs in areas that vote Republican.

Tit-for-tat

Tit-for-tat threats of that kind have happened many times in the past. The special thing this time around is the destruction of trust among countries that have long been close trade allies with the U.S.

Polling by Pew Research at the end of last year showed the U.S.'s global reputation was already sagging under Trump's leadership.

Jean-Claude Juncker, president of the European Commission, has implied the mood has not changed following Trump's latest threat.

"So now we will also impose import tariffs. This is basically a stupid process, the fact that we have to do this," he told German media. "But we have to do it."

And while it might be possible to write off Trump as the whacky guy who will say almost anything — to divert attention from some other scandal or to raise a cheer among hard-line supporters — the things he is saying fly in the face of decades of accepted Republican positions on trade.

"Trade wars are good, and easy to win," as Trump tweeted at 6 a.m. on Friday, contradicts not only roughly 80 years of U.S. government policy, but virtually all economic trade analysis.

Not only that, Trump's comments also fly in the face of facts as outlined by the U.S. government's own trade officials.

House Speaker Paul Ryan is no fan of Trump's proposed tariffs on steel and aluminum. (Yuri Gripas/Reuters)

But over the weekend, most of Trump's fellow Republicans failed to repudiate his comments spewing out one after the other on Twitter — ideas and rhetoric they know are ill-advised. 

Whether accidental or intentional, misunderstanding how international trade works is no way for a country to maintain the trust of its allies. 

"The Trump trade team continues to focus on the trade balance, but that focus is misplaced," economist Christine McDaniel of George Mason University's Mercatus Center said in an email. 

She says the trade deficit is often larger when the economy is growing, and that in the past, trade surpluses have not correlated with job creation. She also points out the U.S. economy has created tens of millions of jobs since NAFTA came into force.

Waking up to risk

There are signs Republicans are beginning to wake up to the danger of Trump's pronouncements, if only to prevent U.S. stock markets from crashing.

Yesterday, Speaker of the House Paul Ryan called on Trump to drop plans for the new tariffs.

"We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan," Ryan spokesperson AshLee Strong said. "The new tax reform law has boosted the economy and we certainly don't want to jeopardize those gains."

The head of the United Steelworkers, Leo Gerard, who happens to be Canadian, reminded Trump that Canadian aluminum is a strategic good for U.S. military procurement.

"The president, I don't think, was made aware of that," Gerard told CBC.

There seems to be so much the president has not been made aware of, including the idea that introducing steel tariffs as a new threat after seven rounds of intense NAFTA bargaining is no way to increase trust with people who, until recently, were America's closest trade allies and supporters.

In the short term, most experts say Trump's disruptive trade statements will hurt markets, and if he manages to see them through, the U.S. economy.

But in the longer term, it is the credibility of the United States as a country that keeps its word, knows the facts, plays fair and seeks trade for mutual benefit that may be damaged the most.

It used to be that the U.S. set a standard.

After the latest trade spat settles down, a U.S. establishment that has been willing to meekly follow such leadership could end up being a few notches lower in everyone's esteem. And in international trade, that counts.

Follow Don on Twitter @don_pittis

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ABOUT THE AUTHOR

Don Pittis
Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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