If there were any faint hopes that the deep cultural and commercial ties between the UK and the US would secure a sweetheart free trade deal for the smaller UK after it leaves the European Union, they are now surely dashed, writes Noah Gordon.
Noah Gordon is fellow at the Centre for European Reform (CER), a London-based think tank. He works on transatlantic relations and European foreign and security policy, with a focus on the Middle East and German issues.
For a while, it was hard to tell which way he would go. Sure, President Donald Trump always thought trade relations were zero-sum and that countries with trade deficits were losers. He did criticise the EU as a “vehicle for Germany”, and he did pull the US out of the Trans-Pacific Partnership and allow his advisers to suggest that the US could ignore WTO rulings.
However, Trump’s first year in office gave free-trade advocates some reason to be optimistic. While the US had begun an investigation that could potentially lead to sweeping tariffs on imported metal, Trump delayed imposing such tariffs, to the dismay of steel and aluminium producers hoping for protection from foreign competition. What’s more, Trump had not carried out a threat to withdraw the US from the North American Free Trade Association. Despite disagreements between the US, Canada, and Mexico, the renegotiation process was still alive. The United States had not gotten involved in a major trade war.
This week, though, the president let his protectionist instincts win.
On Thursday Trump signed an order imposing tariffs of 25 per cent and 10 per cent, respectively, on steel and aluminium imported to the US. It’s clear that these tariffs are self-defeating. US companies that buy steel and aluminium to make everything from trucks to beer cans employ more than 6.5 million workers, whereas the mills and smelters that produce these metals employ around 200,000 Americans. Technological innovation is the main reason US steel employment is shrinking, not foreign competition.
And though the tariff is aimed primarily at China, America’s allies may be the real losers. The US (and the EU) already imposes tariffs on some Chinese steel, with the justification that Chinese steel producers receive illegal subsidies and “dump” their steel on Western markets. But American steelmakers say that China simply ships steel through third countries. Trump heard their pleas, and will tax steel imports from the world over. There is only a temporary exception for Canada and Mexico, pending renegotiation of NAFTA, and none for the European Union. European leaders have pledged to respond with tariffs of their own that could lead to billions of dollars in American export losses.
This all puts the international trading system under great pressure. The US claims that the metal tariffs are needed to protect national security. This is a very questionable assumption, given that the US military only requires three per cent of domestically produced steel.
But it is very difficult for other countries to challenge the tariffs: the WTO has an obscure, little-used national security exception that essentially allows countries to determine for themselves whether their security is at stake. WTO members are expected to show restraint in invoking the security exception, but Trump might be opening the floodgates. If the WTO eventually found against the US, it might give Trump a pretext to pull out of the organisation in order to “protect” American industry. If the WTO allowed the tariffs, China might suddenly discover that, say, foreign soybeans are a threat to national security. Trade rules would become paper tigers; all bets would be off.
That’s why, in addition to challenging the US at the WTO and waiting for a ruling, the EU is considering striking back immediately. Brussels has drawn up a list of products to be taxed, including steel, aluminium, and products from politically-sensitive Republican-run states like Kentucky bourbon and Florida orange juice.
The fact that Trump has gone ahead despite these negative consequences is evidence not just of his ignorance of international economics, but also that one team of advisers is winning the battle in the White House. For the UK and the EU, it’s the wrong team. Gary Cohn, the president’s top economic adviser, had been working for months to forestall the tariffs and announced on Tuesday that he will step down. Another powerful opponent of the trade barriers, Rob Porter, was forced out in February amid accusations of domestic violence.
On the other hand, America-first advisers such as Commerce Secretary Wilbur Ross, Trade Representative Robert Lighthizer, and the trade specialist Peter Navarro—author of Death by China—are on the rise. Unfortunately, under the relevant law the president has the power to continue national-security tariffs indefinitely without getting approval from pesky free-traders in Congress and his own Republican party. As the Mueller investigation gets closer and closer to the president’s family, the temptation to listen to the protectionists and play to the America-first base will be strong.
There is a Brexit angle to all of this. Size has always mattered in international relations, as the UK is learning through its negotiations with the EU. Any future US-UK trade deal—Liam Fox, the secretary for international trade, is talking up the prospect—was going to have to be skewed in favour of the US in order to make it past Congress.
Any president would seek a deal that allows American farmers free access to the British market, and enables US pharmaceutical companies to make more money off the NHS. Just this week we saw another example of the power imbalance: US negotiators are taking advantage of Brexit to press for an “open skies” air services deal that would place British carriers under tougher restrictions than European ones.
If there were any faint hopes that the deep cultural and commercial ties between the UK and the US would secure a sweetheart free trade deal for the smaller UK, they are now surely dashed. This American president cannot be trusted to uphold the international trading system, or even to spare America’s allies from unjustified tariffs. He cannot be trusted to be a friend to post-Brexit Britain.