On Thursday afternoon, March 1, Donald Trump, in a shocking press conference with U.S. steel industry executives, made the totally unexpected announcement that he will shortly impose a 12% tariff on all steel imports and a 10% tariff on all aluminum imports in order to protect U.S. national security and increase employment in those sectors. He has that authority under the 1962 Expansion of Trade Act which, in Article 232 gives the president unilateral authority to impose punitive, protective tariffs on any imports that might negatively impact national security. In order to get such a threat assessment, Trump did not go to his national security advisor or the secretary of defense – but instead he had his ideological identical twin, Commerce Secretary Wilbur Ross, prepare it a couple of weeks ago. Ross, of course is a declared enemy of global free trade and an exponent of hostility towards Mexico!
Now, in the midst of what amounts to the beginning of a trade war by the U.S. against the rest of the world, Trump tweeted on March 5th: “We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for the U.S.A. Massive relocation of companies and jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA Agreement is signed… highly restrictive Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying”. Stating that “Trade wars are good and easy to win” he irrationally added on March 6th, “The tariffs will be applied in a very loving way.” Trump did not consult the rest of his cabinet secretaries or the leadership of any of the U.S.’s allies prior to his announcement of March 1st. But the problem is not that, but, apart from creating an internal crisis as far as its commercial policy is concerned, it seems that he understands absolutely nothing about how a commercial war works and the economic impact for all involved. First, President Trump does not know how much the US trade deficit rises with the world because in his tweets he reports a figure that is completely different from reality. Secondly, he does not understand how the current commercial exchange works because he believes that it is a personal issue where mercantilist theory is applicable and discards the possibility that trade increases productivity and world welfare. In the third place, as Paul Krugman comments "... To take a random example, it makes a lot of sense to produce aluminum, a process that uses vast quantities of electricity, in countries like Canada, which have abundant hydropower. So the U.S. gains from importing Canadian aluminum, whether or not we run a trade deficit with Canada ... "That is, the trade deficit comes from the behavior of the industries of a given country. Like it or not, the commercial deficit is part of the economy, the only difference is that it can be harmful when the unemployment rate is high and there is economic recession and that is not the case for USA. Finally, the imposition of tariffs is not an issue related to masculinity; on the contrary, it unleashes economic retaliations that only result in the contraction of international trade and the increase in poverty worldwide.
It is therefore not surprising that the response was swift and entirely hostile: The European Union, for instance, is planning to apply punitive tariffs on U.S. Harley Davidson Motorcycles, Bourbon Whiskey, Levi’s Jeans, Orange Juice, Peanut Butter, Cranberries and all U.S. Steel Products. Canada, the largest steel supplier to the U.S. is planning sanctions as well. Mexico, severely impacted since it is the fourth largest supplier of steel to the U.S., is now confronted with a particularly sensitive situation: on the one hand we would be protected by international law, since NAFTA in its article 302 prohibits the imposition of new tariffs on any product, but on the other, Trump has no respect at all for international law! The second problem confronting us is the desperate need for money by the Kushner family. Two years ago, Jared Kushner and his family real estate company made the stupid decision to buy the Manhattan scyscraper known as 666 Fifth Avenue for 2 billion dollars. While Russia, China and Qatar rejected their requests for financial help, things changed somewhat when Trump moved into the Presidency: Kushner, now special adviser to Trump, summoned the C.E.O’s of Apollo Financial and CitiGroup into his White House office and a week later the Kushners had half a billion Dollars. In some of the U.S. media there is now speculation that Jared Kushner could try a comparable tactic to get the remaining billion and a halt from us in return for an exemption from the application of his father-in-law’s punitive tariffs…
By: Dr. Juan Carlos Botello and Dr. Werner G.C. Voigt (Independent External Contributor)
