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Why Trump's combative trade stance toward allies poses risks

Handout/Reuters

Group of Seven leaders discuss the joint statement following a breakfast meeting on the second day of the G-7 meeting in Charlevoix, Canada, on Saturday.

The Associated PressWASHINGTON (AP) — Insulting the host, alienating allies and threatening to suspend business with other countries: U.S. President Donald Trump was in full trade-warrior form for the weekend summit of the Group of Seven wealthy democracies in Canada.

The president’s acrimony raised the risk of a trade war that could spook financial markets, inflate prices of goods hit by tariffs, slow commerce, disrupt corporations that rely on global supply chains and jeopardize the healthiest expansion the world economy has enjoyed in a decade.

Leaving the conclave in Quebec on Saturday, Trump threatened to “stop trading” with America’s allies if they defied his demands to lower trade barriers. And he shrugged off the risk that his combative stance would ignite escalating tariffs and counter-tariffs between the United States and its friends — the European Union, Canada, Japan and Mexico.

“I think the way this plays out is we end up with our trading partners responding in kind — a threat for a threat, a tariff for tariff,” said Rod Hunter, a lawyer at Baker McKenzie and a former economic official on the National Security Council. “You end up with gradual escalation.”

The summit at Quebec’s Charlevoix resort failed to produce any truce in an intensifying trade conflict. Trump has imposed tariffs on steel and aluminum imported to the United States from the EU, Canada and Mexico. He has justified the tariffs by claiming that a reliance on foreign steel and aluminum threatens U.S. national security.

“He’s a puncher or a counterpuncher, and he thrives on conflict,” Hunter said. “He’s not likely to change. As long as he’s president, this is the approach we have to expect.”

Tim Buthe, a Duke University political scientist who studies trade, said, “Is it possible that Trump sees this mostly as a poker game and is just bluffing, and if the others cut him a deal, we’ll return to normal relatively soon?”

Yet Buthe cautioned: “These kind of things can spiral out of control fairly quickly” as countries hammer each other with escalating retaliatory tariffs.

Economists and trade analysts note that the rules of world trade aren’t as one-sided as the president argues. According to the World Bank, America’s average tariff is 1.6 percent, the same as the EU’s, only slightly higher than Japan’s 1.4 percent and double Canada’s 0.8 percent. The rules of the World Trade Organization do allow Canada’s punishing tariffs on dairy and the EU’s on autos. But in WTO negotiations, the United States bartered those and other things away for what it wanted, including strong protections for intellectual property, or IP.

As a result, Hunter said, America has become “the world’s leading IP-based economy.”

During the talks in Quebec, Trump surprised G-7 leaders by proposing an end to all tariffs and trade barriers. The “ultimate thing,” he said, would be, “you go tariff-free, you go barrier-free, you go subsidy-free.” The president offered no roadmap to a tariff-free world, and analysts greeted the proposal with skepticism.

“What a happy thought,” said Hunter, the trade lawyer. “But who would take this challenge seriously from the president who declared in his inaugural address that ‘protection will lead to great prosperity ?’”

Sen. Ben Sasse of Nebraska, R-Neb., said in a statement: “If the president is actually serious about leading the expansion of a G-7 no-tariff, free-trade agreement, that’s tremendous, tremendous news — for the U.S. and for the free nations of the world ... But the path to more trade begins with less whining on the global stage.”

Trump has failed so far to get the steel and aluminum tariffs to pressure Canada and Mexico into revamping the North American Free Trade Agreement to better favor the United States. The president has sought to revise NAFTA to encourage manufacturers to invest more in America and shift production from low-wage Mexico to the United States. The talks have floundered over several issues, including Trump’s insistence on a clause that would end NAFTA every five years unless all three countries agree to sustain it.

At the G-7 summit, Trump’s spokeswoman, Sarah Huckabee Sanders, said the U.S. was “close to a deal” on NAFTA. On Saturday, Trump said again that he might pursue separate trade pacts with Canada and Mexico instead of continuing with a three-country NAFTA deal.

But Trudeau later contradicted the president: “We will not, cannot sign a trade deal that expires every five years. That is not a free trade agreement.”

“People keep saying, ‘We’re going to pull back’” from a trade war, said Mary Lovely, a Syracuse University economist. “Unless there’s congressional intervention, it’s hard to see where this goes.”Speech

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