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Tactical mis-step from Donald Trump on trade

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Tactical mis-step from Donald Trump on trade

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US trade

Tactical mis-step from Donald Trump on trade

Tariffs on solar panels and washing machines are foolish, not ruinous

Donald Trump this week announced emergency 'safeguard' tariffs aginast imports of solar panels and washing machines © Reuters

There is nothing that the attendees at the World Economic Forum in Davos like better than a news event that fits a narrative and confirms a prejudice. Donald Trump, the showman in the White House, has obliged.

On Monday Mr Trump announced emergency “safeguard” tariffs against imports of solar panels and washing machines, citing jobs being lost among American producers.

The narrative is obvious: Mr Trump is following through on his promise to tear up the rule book and punish China for dumping cheap products on the American market, even at the risk of starting a trade war. That conclusion would, however, be mistaken. Mr Trump’s actions are foolish and counter-productive, to be sure. But they are neither wildly unusual nor, by themselves, desperately damaging. This particular decision says as much about the degree of destructive licence afforded by the US’s trade laws as it does about Mr Trump’s aggressive eccentricities.

It is important to be accurate about the tariffs announced on Monday. Rather than being an arbitrary unilateral initiative, they employ an existing (if rarely used) provision in US trade law and largely follow advice from the independent official agency, the International Trade Commission. Nor are they targeted against China: they affect imports from a range of countries.

The duties on domestic washing machines, for example, will hurt mainly South Korean exporters. And as “safeguards”, rather than anti-dumping or anti-subsidy duties, they do not involve judgments about unfair pricing or subsidy by a foreign company or government.

We have been here before, under the previous two presidents. In 2009, using a tool specific to China, Barack Obama put safeguard tariffs on tyres. In 2002 George W Bush did the same more broadly to imports of steel. In both cases, critics howled that the sky was about to fall in. In both cases, the tariffs served a relatively short-term political goal of being seen to protect a particular domestic industry. Neither presaged a general surge of protectionism, still less a global trade war.

With regard to trade, Mr Trump is a far more reckless and misguided president than either Mr Obama or Mr Bush. He has the opportunity in the weeks and months ahead to create more serious damage, with separate investigations into alleged Chinese abuses of intellectual property rights and into whether aluminium imports constitute a threat to national security. Those could more readily be used as broader tools to punish individual trading partners for perceived misdemeanours and to protect whole swaths of domestic industry on bogus security grounds.

Still, it does need to be said that most of the administration’s actions on trade so far have remained in the realm of the wrong-headed rather than the absurd, and that there has been some degree of calibration in their use. The solar tariffs, for example, are set below the maximum level permitted, and their level will be reduced in coming years. There appears to be at least some recognition of the damage that will be done to the US’s big solar-installation industry by suddenly increasing the price of its inputs.

What one should think of Mr Trump’s trade policy depends on one’s expectations. Compared to previous administrations, it is seriously worrying. Compared to the extraordinary rhetoric about across-the-board 45 per cent tariffs he articulated before his election, it is a blessed relief. The world trading system is not infinitely resilient. It can, however, absorb blows like the one Mr Trump dealt it this week.


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