By Melito Salazar Jr.
I thought that US President Donald Trump would not start the trade war last week. With so many issues on his plate and a forthcoming June 12 summit with North Korea, with China as its back room supporter, I believed he would take it easy. I guess my last statement in my previous column was correct, its Donald Trump against the world!
President Trump went ahead and imposed tariffs on steel and aluminum imports from the European Union, Canada, Mexico and China using as a justification a provision that allows such for national security reasons. Yet all these countries, except China have always been considered as American allies and now they are considered by President Trump, dangerous to US security? No wonder the Canadian foreign minister considered it, “insulting.”
President Trump’s move is seen as pampering to his core constituency which has felt treatened by better skilled and educated immigrants, businessmen unable to adopt technology and systems to become globally competitive and sectors traditionally isolationist in outlook and mindset. Yet these groups will be the biggest losers in the forthcoming trade war as they are just postponing the inevitable- uncompetitive labor will face early retirement; businessmen depending solely on protectionist measures will go bankrupt; and those who live in the past will be unable to cope with the present and be irrelevant in the future.
The American consumer will suffer increases in the prices of imported products they are addicted to and will be unable to switch to American-made products lower in price but not comparable to the quality of imported ones. American companies that depended on imported inputs and have modified their systems to a globally suited one, will either have to make do with American made inputs with all the disadvantages or adjust their pricing resulting in lower profits and less taxes for the IRS. American companies exporting to the American “allies” will find it more difficult to hold on to their markets as retalliatory tariffs come into play. Ironically these countries are targeting products made in the Republican strongholds and one wonders which way they will vote in the forthcoming mid-term elections as Trump’s policies lead to economic downturn in their respective states.
Down the road, the US citizens will suffer as their government is subjected to fines by the World Trade Organization (WTO) to whom all the disadvantaged countries will bring their case to. I doubt whether the WTO will allow the United States to get away with it’s unilateral action based on “national security.” The imposition of financial remedies will definitely add to the fiscal deficit of the Trump administration.
The retaliatory tariffs will also hurt the consumers of China and the American “allies” by increasing the prices of products they purchase. Trade between the United States and the rest of the world will most probably decrease. This may be the opportunity for other countries, maybe from the developing world to fill in the gap in the imports from the United States or the exports to the United States since the items to be covered by tariff increases will escalate from steel and aluminum. Yet any global trade war will surely hurt all, even these countries. Globalization and freer trade has led to rising world economic progress and any retreat to protectionism will have negative reprecussions on all nations.
How soon will the Trump adminstration come to its senses, and revert back to the normal functioning of the global trade which has been adopted by all under the auspices of the World Trade Organization? I hope soon enough as President Trump realizes that he is the biggest loser in any global trade war.