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Trump heads to G20 as trade war brews

Americas / 07-07-17 / by
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US President Donald Trump will attend his first G20 Summit in Hamburg this weekend, with experts warning that he could be about to trigger a full on trade war.

Trump has been threatening for weeks now to unveil import restriction measures, using an arcane US statute to justify tariffs on the imports of aluminium and steel.

In April, Trump instructed his commerce secretary Wilbur Ross to investigate whether steel and aluminium imports were a threat to national security, under Section 232 of the Trade Expansion Act of 1962. Rhetoric leading up to the summit implies that Trump is ready to reveal the results of these investigations, and use them to implement import restrictions.

“When the Trump trade team got started, their mandate was to look deep inside the toolbox and find out what kind of mechanisms are available under US law that would allow us to take decisive, radical steps to curb imports in industries we think it’s politically desirable to do so, mostly where there’s US manufacturing at stake,” Bernd Janzen, a trade partner at US law firm Akin Gump tells GTR.

He adds: “Out came this tool that hasn’t been used for a long time, for good reason, because it is in a number of ways inconsistent with the WTO-based trading rules that emerged more recently. Almost by definition an action under 232 is going to violate various aspects of the WTO trading rules system.”

Janzen says that by forcing through these “ham-fisted measures on aluminium and steel”, the US will anger friends and allies, and damage already fragile relationships with the likes of China and the EU. He expects a combination of tariffs and quotas, which would likely violate the rules of the global trading system the US helped to write.

The primary target of these measures would appear to be China, which is undoubtedly a major offender in the dumping of steel and which has been at loggerheads with both the US and the EU for years.

However, a report authored by Chad Brown of the Peterson Institute for International Economics (PIIE) found that the measures would disproportionately hurt countries such as Canada, Mexico, Japan, Germany and South Korea – all of whom are important allies of the US.

Brown explains: “As of 2016, 9.2% of US imports from China were already covered by these trade barriers, compared to only 2.2% of US imports from the rest of the world.”

He also warns that “the administration’s stated protectionist measures are likely to damage the US economy and could spiral out of control, leading to retaliation”.

Backlash 

These retaliatory measures could come in many different forms. They could be tit-for-tat tariffs, cases at the WTO, or the targeting of US businesses abroad. The latter is more likely in the case of China, says Jan Gaspers, the head of the European China policy unit at the Mercator Institute for China Studies (Merics).

He tells GTR: “There are softer measures, the targeting of US businesses in China – red tape, or  tax issues, or targeting managers. That’s painful and builds up the pressure against the US government at home. Bogus charges have been brought in a few cases against businesses from the US and EU in China. Senior management being charged with bogus charges, which don’t go any further but which can take years to clear – this can be very destructive to business.”

Other nations could look to retaliate through government procurement. Governments have leeway to act unilaterally on the purchasing of other countries’ exports. So in the case of a European national airline, they could refuse to purchase Boeing craft as a means of returning fire.

A recent case of this was when Canada suggested in May that it could can plans to purchase a fleet of Boeing fighter jets, after the US government backed Boeing claims that Canadian plane manufacturer Bombardier was dumping jets in the US market.

EU-Japan deal

Meanwhile, on the eve of the summit, the EU and Japan formally agreed an outline free trade deal, that experts say is a “huge political victory” for both countries.

Both the EU and Japan had been involved in talks with the US over multilateral agreements: the Transatlantic Trade and Investment Partnership (involving the EU and US, when it was still at the negotiating stage) and the Trans Pacific Partnership (involving the US, Japan and 10 other Pacific Rim states). TTIP has been put on hold and TPP has been scrapped by Trump by executive order.

That Japan and the EU have signed an agreement, just as Trump is getting ready to unveil protectionist measures, is being described as “symbolic”.

“It is very politically important and symbolic. It is very important to have Japan along with the EU at this time. There is a strong political will and it is a huge political win for the EU and Japan to announce it at the G20 summit: two huge global powers, at a difficult stage for global trade with the situations with the US, TPP and Brexit,” Aline Doussin, a partner in Squire Patton Boggs’ regulatory practice in London, tells GTR.

Few details of the agreement have been made public, but the agreement outlines a path for a deal on trading in goods without tariff barriers between the two economic giants.

It’s not thought that there is agreement over data sharing and investment protection, two contentious non-tariff barriers, but many tariff barriers will fall away, likely benefitting the Japanese car industry and the European food production sectors.

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