Latest posts by David Smith Jr. (see all)
- Implications Of New Developments In U.S. Protectionism - June 1, 2019
- The Spread Of Orwellian Surveillance: China And Beyond - May 10, 2019
- Preventing The Rising Tide Of White Nationalism - March 28, 2019
At the forefront of international headlines last weekend, senior White House officials assured U.S. President Donald Trump’s meeting with Japanese Prime Minister Shinzō Abe would avoid all talks of trade. Instead, the focus of the trip revolved around enhancing political relations between the two countries, especially ahead of major changes in Japanese governance. Yet, President Trump announced potential tariff impositions on automobiles and vehicle parts imported from Japan and the E.U., citing their threat posed to U.S. national security. Specifically, President Trump threatened these foreign manufacturers with a forebodingly familiar number: a 25% tax on imports. Fortunately, the Trump Administration elected to delay this decision for the United States Trades Representative’s (USTR) office, from anywhere between 180 days to six months. Hopefully, this duration gives time for officials to coax President Trump towards other options, for this trade proposal infuriates current American commercial partners, follows a pattern of self-inflicted harm via protectionism, and most of all potentially intensifies the observed deceleration in global economic growth.
Immediately, automobile manufacturers and long-time U.S. trade partners in both Japan and the European Union audibly expressed their displeasure. The Chairman of the Japan Automobile Manufacturers Association- Akio Toyoda- voiced this frustration stating, “We are dismayed to hear a message suggesting that our long-time contributions of investment and employment in the United States are not welcomed.” Prepared to circumvent a future trade war, European Trade Commissioner– Cecilia Malmstroem– tweeted, “We completely reject the notion that our car exports are a national security threat. The EU is prepared to negotiate a limited trade agreement (including) cars, but not WTO-illegal managed trade.” Yet, others still remain contentious. One representative for a conglomerate of automotive corporations- particularly in Germany and the Asian-Pacific- asserted, “No one in the industry has asked for tariffs or other ‘protection’ from the government.” The President of the American International Automobile Dealers Association- Cody Lusk- argues, “Using this spurious claim as justification to force our trading partners into new negotiations will only create more uncertainty for America’s entire auto industry.” This suggested tariff simply appears as another attempt by the Trump Administration to strong-arm trade partners into needless negotiations.
Any potential protectionist measures in the U.S. automotive industry remains quite unnecessary. First, the Office of the United States Trade Representative must prove dealings with Japan and the E.U. actually causes irreparable damage to domestic industries, specifically manufacturers and their respective sources of labour. Essentially, Japan and the E.U. possess a comparative advantage in producing and exporting automotive goods. Likewise, consumers’ demand simply leans more heavily toward foreign brands. However, these two sources of imports manufacture most of their vehicles and parts in the United States, while simultaneously providing a large number of jobs and beneficial investments. In fact, Toyota recently pledged to invest $13 billion in jobs and capital in the U.S. manufacturing market alone. Therefore, any motions by the Trump Administrations to stop this process causes more damage than good.
These unfolding events directly imitate other mistakes the White House has made in using regulations on international commerce. First, the ongoing trade war between the United States and China created similar negative externalities in global and domestic markets. For example, U.S. tariffs on Chinese-imported washing machines caused drastic increases in both washer and dryer prices for U.S. consumers last year. Likewise, Chinese retaliation prompted considerable profit losses for the U.S.’ agriculture industry starting in 2018. As a result, these losses prompted the United States Department of Agriculture (USDA) to provide a $16 billion aid package for farmers affected. Though the aid package serves as a temporary fix, economists and domestic farmers recognize the future implications of losing the vital Chinese market for their exports. In another example, the Trump Administration pursued protectionist actions against Canada and Mexico to reform the NAFTA agreement- particularly steel and aluminium tariffs. This attempt also incurred losses. In this case, the premium ironically fell on U.S. automotive OEM’s. The CEO of Ford- James Hackett- claims, “From Ford’s perspective the metals tariffs took about $1 billion in profit from us.”
Therefore, President Trump and the USTR Office might consider alternatives to engaging in trade negotiations. A trade partnership implies nations supply goods and services to one another, based on comparative advantages that each can provide. In this case, Japan and the EU seem to certainly hold an advantage in producing goods for the U.S. automotive industry. By distancing its markets from foreign counterparts, the United States leaves room for the inflicted country to do the same. When coupled with Japan’s current economic struggles and the E.U.’s political uncertainty, this prospect certainly becomes probable, though not favourable. Also, the Trump Administration should be wary of stretching itself too thin regarding international trade policy. Already involved in a strenuous engagement with China, the U.S. might further hinder its own growth in terms of consumption and employment. Since the key selling points of the Trump presidency remain economic growth and low unemployment, further hawkish trade behaviour seems ill-advised, especially as economists warn of a looming global recession.