War With The World: Trump Puts Tariffs On India, Considers Australia

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Posted: Jun 04, 2019 11:54 AM
War With The World: Trump Puts Tariffs On India, Considers Australia

Source: AP Photo/Andrew Harnik

Add India to the list of countries the US is n a trade war with. For now, Australia barely avoided Trump's wrath.

“I have determined that India has not assured the United States that India will provide equitable and reasonable access to its markets,” Mr. Trump said on Friday.

Tariffs start June 5 as Trump Pressures India Over Open Markets.

Mr. Trump on Friday said India would be removed from the U.S.’s privileged-trading program called the Generalized System of Preferences on Wednesday. Under the decadeslong program meant for some developing economies, the U.S. had allowed India to avoid tariffs on certain exports to the U.S. in the interest of promoting tighter trade ties and development.

India, the U.S.’s ninth-largest trading partner, is a top beneficiary of the GSP program. Mr. Trump’s move will add tariffs of as much as 7% on Indian exports of goods like chemicals, auto parts and tableware to the U.S., which in 2018 accounted for more than 11%, or $6.3 billion, of India’s total exports of goods valued at $54.4 billion, according to the Congressional Research Service, a research agency for the U.S. Congress.

Spotlight Australia

Please consider Trump Administration Considered Tariffs on Australia.

Some of President Trump’s top trade advisers had urged the tariffs as a response to a surge of Australian aluminum flowing onto the American market over the past year. But officials at the Defense and State Departments told Mr. Trump the move would alienate a top ally and could come at significant cost to the United States.

The administration ultimately agreed not to take any action, at least temporarily.

The measure would open yet another front in a global trade war that has pitted the United States against allies like Canada, Mexico, Europe and Japan, and deepened divisions with countries like China. It would also be the end of a reprieve for the only country to be fully exempted from the start from steel and aluminum tariffs that Mr. Trump imposed last year.

The tariffs on Australia would have hit imports of aluminum, although measures that would have applied to other products had been discussed as well. Shipments of Australian aluminum to the United States have surged since last year, when Australia became one of the few countries not to face metal tariffs.

Unfair Competition

Trump wants to protect US steel and aluminum manufacturers from "unfair competition".

How come the rest of the world, including Canada and Australia can produce steel and aluminum cheaper than the US?

Even if there was a nefarious answer to that question (there isn't), the fact remains that far more US industries benefit from cheaper metals than are harmed by them.

Logically, no matter the reason, the US should welcome cheap steel and aluminum.

Chain Reaction

Trump put tariffs on steel and aluminum from Mexico, Canada, and China, so importers turned to Australia.

Aluminum imports from Australia rose by 45 percent from 2017 to 2018. They are up even more, by 350 percent, for the first three months of 2019, compared with the same period in 2018.

The same thing is happening across the board.

Tariffs on China drove imports from Vietnam, India, and other places.

For now, Australia is still a small supplier. Yet Trump is hopping mad.

Understanding Trade

I saw an interesting Tweet yesterday in which someone claimed "trade is a zero sum game".

That is seriously wrong. Unfortunately, that is how Trump views things. Trump believes there is a winner and loser to every deal. The fact is both sides have to believe they gain, or there is no deal.

Here's a simple example I gave someone other night in a discussion at karaoke.

Imagine an island with 8 people. Four are net makers and four are fishermen. The net makers make and mend nets, and perhaps gather coconuts in their spare time.

The net makers trade nets and coconuts for fish.

In the absence of trading nets for fish, the net makers would have to learn how to fish. The fisherman would have to learn now to make nets and plant and gather coconuts.

It's much easier to become skilled at one or two things than dozens of things. In essence, this is what trade is all about: Everyone wins.

Better Deal

By insisting on getting a better deal than the other side, Trump risks a slowdown in trade.

Trump thinks this will bring jobs back to the US.

It won't.

Steel and aluminum are particularly misguided tariffs because very few are employed in industries that produce steel. By a factor of 10 or more there are more US manufacturers who use steel and aluminum.

The US has some legitimate gripes, but tariffs never have, nor ever will, produce the results Trump hoes for.

Not Easy to Win

Instead of trade wars being easy to win, we see Trump is in a trade war with the world, with precisely zero victories.

Meanwhile, China Puts U.S. Soybean Buying on Hold as Tariff War Escalates.

No one wins trade wars. Upping the ante just makes for bigger losses all around.