Trade wars: Tariffs on bourbon, Harleys and orange juice?

- Maret 02, 2018

President Donald Trump declared Friday that "trade wars are good, and easy to win.” But trade experts predict something much messier — a series of tit-for-tat retaliations aimed at the heart of American agriculture and manufacturing.

A counter strike from the rest of the world would likely target products from politically sensitive Republican-run states, including include tariffs on Harley-Davidson’s made in Speaker Paul Ryan’s district; new duties on bourbon made in Senate Majority Leader Mitch McConnell’s home state of Kentucky; and duties on orange juice from Florida — a critical swing state.

Across the globe, Trump’s plan to impose a 25 percent duty on steel and a 10 percent duty on aluminum imports would alienate dozens of countries in Europe, North America and Asia, many of them longtime allies and trading partners, who could turn the tables by targeting key U.S. sectors such as agriculture and aircraft, based in states that elected him and fellow Republicans.

“The potential for escalation is real, as we have seen from the initial responses of others,” said World Trade Organization Director General Roberto Azev√™do. “A trade war is in no one’s interests. The WTO will be watching the situation very closely.”

EU officials also said there were ways to roll out the measures without first running through a lengthy gauntlet of WTO dispute settlement procedures.

The EU and Japan use a similar tactic in 2002, when former President George W. Bush also imposed sweeping duties on steel imports. Bush later withdrew the tariffs after losing a challenge brought by more than a dozen countries at the World Trade Organization.

For now at least, the former businessman and reality-show star seems to relish to the coming conflict.

"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," Trump tweeted early Friday. Example, when we are down $100 billion with a certain country and they get cute, don't trade anymore — we win big. It's easy!"

Trump is justifying the move based on a pair of Commerce Department reports that concluded that current volumes of steel and aluminum imports threaten national security by undermining the long-term viability of U.S. producers.

But most other U.S. industries and foreign countries see that as thinly-veiled protectionism.

"We have repeatedly warned that the risks of retaliation and the precedent set by such a policy have serious potential consequences for agriculture," U.S. Wheat Associates and the National Association of Wheat Growers said Thursday in a joint statement. "It is dismaying that the voices of farmers and many other industries were ignored in favor of an industry that is already among the most protected in the country."

Patrick Delaney, spokesman for the American Soybean Association, told POLITICO that his industry is also "very nervous" about the White House's action.

China purchases about $14 billion worth of U.S. soybeans a year, and any hit to demand could make what is already a difficult financial situation for many U.S. farmers worse, especially after several years of low commodity prices.

"It’s unfortunate that we have to pay the price when the administration prioritizes another industry over agriculture," Delaney said.

The pork industry is also “concerned that this decision may result in retaliation against pork and other U.S. goods, particularly other agricultural products,” said Dave Warner, a spokesman for the National Pork Producers Council.

“And the use of national security as a justification for the restrictions will open the door for other countries to use food security as a reason to limit agricultural imports — the ox that often gets gored by countries looking to retaliate against U.S. trade measures,” Warner added.

Retaliation could also target U.S. built aircraft, a major U.S. export industry that has supply chains woven through most states, along with major commodity crops like soybeans and corn, that could hit the red center of America, said Bill Reinsch, a senior fellow at the Center for Strategic and International Studies.

But retaliation can only go so far before a country starts hurting its own businesses and consumers, Reinsch said. It’s also a risky move that could spiral into a full-blown trade war, as one set of retaliation prompts another and then another, bringing more industries into the fray.

That happened in the lead-up to the Great Depression after Congress passed what became known as the Smoot-Hawley tariff act in 1930, which raised tariffs on more than 20,000 goods. That's generally blamed for worsening the Great Depression, as other countries adopted their own measures and trade volumes fell.

Trump's steel and aluminum tariffs would only hit about $40 billion to $50 billion worth of imports, out of total imports of $2.9 billion last year. However, it's still a large enough figure to inflame relations around the world.

White House trade adviser Peter Navarro downplayed the possibility of major retaliation.

“I don’t believe any country in the world is going to retaliate for the simple reason that we are the biggest and most lucrative market in the world,” he said Friday on Fox Business.

“They know they’re cheating us and all we’re doing is standing up for ourselves,” added Navarro, who has been a driving force in pushing Trump to move ahead with the tariffs. “This is a courageous move by Donald Trump."

Although China is blamed for creating much of the global excess capacity in steel and aluminum, the United States imports relatively little from that country because of anti-dumping and countervailing duties already in place to stem Chinese shipments.

Of $29.1 billion worth of steel that the United States imported last year, $9.2 billion came from the 28 nations of the Europe Union and neighboring countries, $5.1 billion from Canada, $2.8 billion from South Korea, $2.5 billion from Mexico, $1.6 billion from Japan, $1.4 billion from Russia and just $976 million from China.

“For China, there isn't a big economic impact because it's a 25 percent tariff on about a million tons of steel and their production of crude steel is over 800 million tons, said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics.

The situation is somewhat similar for aluminum, although China is a slightly bigger player in the U.S. market: Total imports last year were $17.8 billion. That included $7.3 billion from Canada, $1.6 billion from Russia, $1.4 billion from the United Arab Emirates, $1.3 billion from China and $582 million from Argentina.

Still, the Trump administration is already planning another action aimed solely at Chinese policies and practices that it says puts billions of U.S. intellectual property at risk and forces American companies to hand over valuable technology.

That could potentially lead to the United States imposing retaliatory tariffs on an array of Chinese goods — setting the stage for a bilateral trade row that could hit an array of U.S. sectors. Agriculture would be particularly vulnerable since China is the top U.S. customer for soybeans, as well as overall U.S. agricultural exports.

U.S consumers would pay more for certain products even before any country retaliates against the United States. That’s because U.S. manufacturers, beverage makers and other companies that use steel and aluminum would face higher costs because of the import tax Trump plans to impose.

“Make no mistake, this is a tax on American families. When costs of raw materials like steel and aluminum are artificially driven up, all Americans ultimately foot the bill in the form of higher prices for everything from canned goods to automobiles,” National Retail Federation President Matthew Shay said.

Firms and workers in the transportation, construction, and packaging sectors would be especially hard-hit, Bryan Riley, a trade specialist at the National Taxpayers Union, said in a blog.

“Based on 2017 import levels, a 25 percent steel tax and a 10 percent aluminum tax would represent a tax increase of up to $9.5 billion,” he said.

Rufus Yerxa, a former deputy director of the WTO who now heads the National Foreign Trade Council, a U.S. business group, underscored that point — and the risk to U.S. industries caught in the cross-fire.

“Construction is the largest single sector for using steel. They use all kinds of steel in construction, in commercial and residential. That means prices go up for everything they use and their sources of supply become tougher,” Yerxa said. “And then our really competitive exports, our high technology products, our automotive products, our airplanes, our food products and everything else starts getting hit by foreign retaliation.”

Catherine Boudreau contributed to this report.


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