Donald Trump is set to double down on his failing strategy on trade.
Yesterday, the Trump administration announced that it would impose tariffs on European goods worth more than $7.5 billion. This is after the World Trade Organization (WTO) ruled in favor of the United States. Washington had accused the EU of giving illegal subsidies to Airbus. In celebration, the president tweeted:
Trump Responds With a Failing Strategy
Shortly after the U.S. won the 15-year battle, the Trump administration settled on a failed strategy. Tariffs have not helped the U.S. For example, last year, Trump implemented tariffs on aluminium and steel. This was done with the goal of saving the American steel and aluminium industry. However, the industry is still suffering.
Just yesterday, Bayou Steel Group in Louisiana closed unexpectedly, laying off 376 people. In the past year, the stock prices of the biggest steel companies have declined double digits. The stock price of Nucor, US Steel, and Steel Dynamics has declined by 23%, 62%, and 37%, respectively.
Meanwhile, the cost of steel has been increasing, leading to a higher production cost for manufacturing.
Trump’s tariffs have not helped with China. When he started his trade war, Trump argued that American firms in China would be forced to leave the mainland economy for the U.S. Again, that has not happened, and companies have ruled out moving their production to the U.S. They have a point. Why would they leave Asian countries where wages are $2 per hour to the U.S, where labor costs are much higher? Again, these tariffs have not narrowed down the trade deficit between the U.S. and China.
The main reason why Trump is cornered is that he started his trade wars with the wrong goal. His end goal was to narrow the multi-billion trade deficit the United States has with the rest of the world. To end a trade deficit, the right strategy is not to stop trade. In fact, more trade is the solution. Trump should have negotiated with the goal of helping to sell more goods from the U.S. With a trade war, the U.S. is exporting less and importing more.
Back to Trump’s Beef with the EU
Trump has never been a fan of the European Union. For decades, he has complained that the EU takes advantage of the U.S. However, data from the U.S. do not support this.
According to the Office of the United States Trade Representative, the volume of trade of the two regions was $1.3 trillion. Exports from the U.S. were $575 billion, while imports were more than $684 billion. The trade deficit was $109 billion. However, the U.S. had a service surplus of more than $60 billion.
Trump has often argued that the EU has put in place high tariffs on U.S. goods. That is false. According to the European Union, more than half of EU-U.S. goods are not subject to tariffs. For the goods that have duties, the average tariff is 2%, which is relatively low.
In addition to the just-announced tariffs, Trump is also considering adding duties on European cars, Obviously, these tariffs will be met with retaliatory measures from the EU. Most of these tariffs will be on farm goods like soybeans and corn. This is an industry that is suffering after China halted purchases.
Wrong Time For Tariffs
Trump is ramping up his trade war at the wrong time. He is facing impeachment, his approval rating on the economy have fallen, the manufacturing sector is in decline, and consumer confidence is in free fall. And he is facing re-election in 2020. Therefore, foreign leaders know that he is at a weak spot, which means that they can wait until the next election. Worse, we don’t even know what the U.S. will gain even if new trade deals are reached.
What we know is that the biggest thing that changed in NAFTA was its name. We also know that no deal will bring manufacturing back to the U.S.