Trade war

The first lesson for Treasury Secretary Scott Bessent is that digital photography has totally changed politics, as wiser practitioners have long since realized. You might have got away with reading private communications in public 30 years ago, but you can no longer do so. The second lesson is that if you build an administration on the promise that you will always serve the American interest, certain foreign policy decisions become difficult. Bessent has been caught reading a message on his phone from Agriculture Secretary Brooke Rollins expressing her anger at the Trump administration’s deal to establish a $20 billion loan facility with Argentina, or "the Argentine" as Rollins prefers still to call it.

How was your Liberation Month? It’s been almost 30 days since Donald Trump stood in the Rose Garden of the White House and announced a shocking set of massive tariffs on the world. The event caused huge convulsions in the economic universe: trillions were wiped off the stock market and, under huge pressure, Trump did agree to a 90-day pause on reciprocal tariffs. After that he exempted electrical goods, though his standard 10 percent remains, and the heads of most financial analysts are still spinning trying to figure out what it all means. Yet for all the angst and the apoplexy, yesterday the S&P 500 index closed just 1 percent down from where it was at the beginning of the month.

So the big question is: will it work? Will Trump’s protectionist policies, announced with some fanfare at a Rose Garden event at the White House yesterday, increase American prosperity? Or will they harm the economy?  Opinion on that matter is sharply divided. In one corner we have the free traders. They are wringing their hands and warning about higher prices, disruption of international trade and a trade war no one can win.  In the other corner are – what to call them? Most are not “anti-free traders” or “economic protectionists” (though some are).  Let’s call them “fair traders.” They like the idea of free trade – in theory. What they don’t like is the ethic of “free trade for thee but not for me.

There is no shortage of quotes by Donald Trump that his opponents have tried to use against him — few of which have so far damaged him politically, still less embarrass the man himself. But there is one which really does have the potential to cause him harm in this year’s presidential election: his claim, in March 2018, that ‘trade wars are good, and easy to win’. That isn’t looking quite so clever now, two years later when the trade war that Trump started with China is still far from won. The deal signed today by Trump and Chinese vice premier Liu He brings a respite in hostilities, but there is a long way to go before the US can be claimed to have won, or even to have restored trade to what it was prior to 2018.

If Donald Trump wanted to deliver a seasonal gift to his ‘good friend’ Xi Jinping, the ‘Phase One’ trade deal reached this weekend fits the bill pretty well.  From the viewpoint of the Beijing leadership, it vindicates the Chinese refusal to budge during the long months of trade negotiations despite the threat of escalating duties. What has resulted is less the kind of overall trade agreement originally aimed at by the Trump administration and feared by China as interference in its economy —  and more of a purchase agreement accompanied by reduced tariffs.

Ever since Donald Trump began his trade war with China there have been two possibilities: firstly, that he intends tariffs to form a permanent feature of the landscape in relations between the US and China: a protectionist device designed to protect American jobs indefinitely; or secondly, that he sees his tariffs as a shock tactic devised to draw China into talks which it would otherwise be loathe to join, and with the ultimate aim of freeing up trade. The latest development, halving a set of tariffs which had been in place since September and canceling another set which had been due to come into place this week, points heavily to the latter.

At 12:01 a.m. on Monday, President Donald Trump went a long way toward defusing a potential war – not with Iran, but Canada and Mexico, where Trump revoked tariffs he had imposed in the name of national security. Why the sudden bout of tariff reduction? The president is focusing on a one-front trade war with China. The restrictions began as two fronts of the same war. Trump imposed 25 percent tariffs on steel and 10 percent tariffs on aluminum imported from China last March. Then he extended those tariffs to the EU, Canada, and Mexico on June 1. But the president seems to have concluded that the US can no more fight a two-front war in trade than on the battlefield.