Donald Trump has found a new toy. It is destructive and routinely backfires but is undeniably shiny and impressive, and he is determined to use it. Having already caused the US’s trading partners to scramble around responding to his threats to impose steep tariffs on steel and aluminium, the president now proposes to do the same with cars.
Donald Trump has found a new toy. It is destructive and routinely backfires but is undeniably shiny and impressive, and he is determined to use it. Having already caused the US’s trading partners to scramble around responding to his threats to impose steep tariffs on steel and aluminium, the president now proposes to do the same with cars.
Mr Trump’s justification for the mooted levies is absurd. But assuming he does follow through — his trade bark often being worse than his bite — that will not make them any the less damaging. Governments will now have to consider how to respond, with some in more difficult positions than others. One thing, though, is now clear. Giving Mr Trump permanent trade concessions in return for temporary relief from tariffs will not make him go away. It will only encourage him to do more.
As with the steel and aluminium measures, where he is threatening levies of 25 per cent and 10 per cent respectively, Mr Trump is proposing auto tariffs based on the danger to US national security from importing cars. Only if the US is at war with the rest of the world, including Europe, or facing a blockade of land and sea borders, does it make sense for America to be self-sufficient in autos. But the president has noticed that national security tariffs allow him to move without much restraint from Congress, which wrings its hands but does little to stop him, and may also fit through a loophole in World Trade Organization law.
Indeed, national security has become a key feature in the debate over trade and investment in the US, particularly with regard to relations with China, without agreement on how it will actually be furthered. Many in Congress, to their credit, have a more clear-eyed view than Mr Trump. Lawmakers have rightly criticised the president’s dealings with China over the Chinese telecoms group ZTE. He is trying to get it back into business after it was banned from dealing with US companies, following accusations that it sold sensitive technologies to Iran and North Korea.
For Mr Trump, national security is simply another excuse to impose tariffs for mercantilist reasons. Sober assessment of the US’s geopolitical interests are not part of the process. Beijing, having recognised as much, appears to be exploiting this, offering to make some symbolic purchases of basic commodities in return for continuing access to the US high-tech sector.
Even on mercantilist terms, car tariffs make little sense. The US auto industry is large enough to supply only a little over half the domestic market and does not have much capacity to spare. In any case, the international nature of supply chains makes the concept of American car companies and car production fuzzy. About a quarter of US light vehicle sales are made by foreign-owned car companies operating in the US. And about half of US imports are from Canada and Mexico, many from US car companies or made using US-manufactured components.
Insofar as the trade madness could have a method, it may be to try to force Canada and Mexico to make concessions in their current renegotiation of Nafta. If the car tariff available to exporters outside Nafta, 2.5 per cent, suddenly rose tenfold, that would make the cost of letting Nafta collapse much higher.
But by now Canada and Mexico — and the US’s other large trading partners — should have realised the futility of conceding to Mr Trump. It may require a lot of nerve to refuse to be bullied. But better to hold out than to submit to distortions to the world economy that will endure long after Mr Trump has left office.
