Peter Divey examines President Trump’s delivery on his trade reset pledge.
A proper analysis of President Trump’s trade reset is in order. It has not suddenly risen out of the swamp unformed. Donald Trump has been thinking about it and discussing it for more than 30 years, and now he can try to implement it. That G7 photograph has been much discussed, President Trump, sitting with his arms crossed surrounded by all the movers and shakers standing over him, he looks isolated, cut adrift. Or, like me, you see the point of focus, where all the power emanates from. Context is everything.
Change is always tough, especially if you think the outcome will disadvantage or diminish you in some way. With the expectation of short-term losses, the prospect of long-term gain is difficult to properly consider, emotion tweaking your eye to overlook the final outcome. The G7 response was carefully coordinated and it was hoped that united pressure would force compromise, and it did. But President Trump obviously regretted his decision to sign on to the memorandum and Prime Minister Trudeau of Canada gave him an easy way out.
President Trump has introduced tax cuts and the economy is responding well. The emphasis was on large reductions in corporation tax. Already there are huge investment flows from US companies returning money held in tax havens. It couldn’t be done said President Obama, you would need a magic wand. But just as importantly, Trump was preparing US business for some short term pain. It was a forward payment to counter interim losses as retaliatory measures arose from his trade curveball. Which was why he was annoyed with US business when they started griping. I have given you this, and look at the stock market. President Trump had coordinated with US business and all should have been aware of his plans.
The G7 had analysed the outcome and were acutely aware of the winners and losers. But they did not believe it, surely this is a bluff. The plan is to fight, resist and challenge President Trump every step of the way, so retaliatory tariffs it is. As President Trump had anticipated. The cries of isolationism, protectionism, illegality is all just so much noise. Pain and worry. Actual shock.
Two things have surprised everyone. President Trump is preparing legislation to free the US from the bind of the World Trade Organisation (WTO) and he has not just called out China, he has kicked back hard. No one else would have dared to challenge China and few expected the US to match action to rhetoric. China has actually blinked a little. $550 billion is meaningful and the arm wrestle with China is just beginning, but better now than when they are even stronger.
But Canada is not China. They are much tougher and have the mighty EU urging them on. Do not worry Justin, we are with you. No matter that the EU themselves have offered minor concessions. The North American Free Trade Agreement (NAFTA) negotiations are stalled, waiting for the outcome of Mexican Presidential elections. Canada is one-tenth the size of the US economically and is heavily dependent upon trade with the US market, but Prime Minister Trudeau is unbowed and intends to slug it out with President Trump. The status quo must be maintained and 1.5 billion in Canadian dollars is now to be used to further subsidise Canadian steel mills. Not even any attempt at pretence that this is fair and free trade. Exactly what President Trump is calling out. As for steel so it is for the Canadian dairy industry.
President Trump will impose large tariffs on Canadian car makers who export 1 million cars a year into the US market. The manufacturers will lose this market unless they move production into the US. That is about 165,000 workers, Canadian dairy and steel employ 14,000. He is deadly serious when he says he is going to strip the rust away from the rust belt and President Trump will apply the same pressure to the German auto industry if he needs to.
President Trump also wants Canada and European nations to pay a fair share for NATO protection. General Mattis has already written to the UK Government on this point. No longer will nations thrive under the NATO umbrella on the cheap. It is unclear how the new EU Defence Force will alter European funding towards NATO. As and when the EU or individual nations deign to talk trade with President Trump defence costs and contributions will also be on the table. President Trump has asked Canada to increase their NATO contribution by $20 billion and he has talked about withdrawing the massive US military presence from Germany.
President Trump wants the post-war era of sucking off the US teat to end. As China and Asia rise and Europe stagnates President Trump will try to ensure the US is not anchored to old alliances, at least not on injurious terms. The US can no longer afford to be dragged down or held back and friendship at any cost is almost over. Fair reciprocal trade or a tariff and tax battle, make your choice.
Some have wondered if President Trump is trying to dismantle the EU, but the EU is doing a good enough job of trying to destroy itself. President Trump doesn’t seem to mind an occasional jab though. NATO will only survive if fellow members step up. Pay up or we are off, and you can deal with Russia on a European basis. The recently announced summit with Putin is a poke in the eye to President Trump’s critics as well as a nod to political reality. Talk to me or the magic wand will be used as a fly swat. Over and out.