In early April, China announced $3 billion worth of tariffs on 128 U.S. goods including fruit, wine, nuts – and the type of American ginseng grown in Marathon, Wisconsin. With a new 15 percent tariff on their ginseng, Wisconsin growers worry they will lose sales to Canadian producers who compete for the same customers in China.
American craft breweries sold 482,309 barrels valued at $125.4 million to customers overseas in 2017. Over half of those exports went north to our good beer-drinking friends, the Canadians. Mexican brewers are the largest customer for American barley. If NAFTA negotiations don’t go well, we may all see the cost on our tab.
While President Trump believes China’s large trade surplus shifts the balance of power in a tariff war to the United States, China can respond by punishing U.S. affiliates, who are sitting ducks in a trade war.
Although the steel and aluminum tariffs are promoted by the Trump administration as a strategy to seek fairness for those industries, the tariffs will incite retaliation by trading partners, imposing significant costs on large numbers of U.S. producers and consumers who have nothing to do with these industries’ grievances.
The few domestic companies that may (or may not) benefit from special treatment shouldn’t outweigh the costs for the rest of the economy.
The problem steels tariffs are supposed to address isn’t receiving much attention – a number of countries are undeniably engaging in unfair and even predatory trade practices in the steel and aluminum sectors which are damaging to their trade partners.
When it comes to steel tariffs, we could be in a trade war — with ourselves.
Protectionism is making a comeback. Governments aren’t just trying to protect traditional sectors such as agriculture,chemicals, and machinery out of concern for lost jobs or domestic economic interests. They’re also intervening in the digital economy and innovation-intensive industries as critical components of national competitiveness.
It would be a guessing game to try to predict what the president might do specifically on trade in 2018. Whatever he decides, there are trends morphing the trading system even as the U.S. Government works to figure out its role in shaping it.
We often talk about “trade wars,” but in the era of a rules-based trading system the phrase typically refers to the use of tariffs or import restrictions to inflict economic harm. It was not always so. Before the GATT and its design for the peaceful settlement of commercial disputes, the use of military power in international economics was commonplace. Take the case of the fight over control of nutmeg production in the 1660s.