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Saturday, June 2, 2018

Trump hits his allies and trade war begins

Por Rory

The White House is not afraid. Internal electoral considerations weigh more than the understanding with its main international allies; even when many economists do not get the numbers. After two months of doubts and negotiations, the Administration of Donald Trump has announced that it will finally impose the tariffs with which it had threatened the European Union, 25% to steel and 10% to aluminum, a measure that is called to provoke reprisals from Brussels and open the door to a possible trade war. The decision also includes Mexico and Canada; two countries that added to the EU provide almost half of the aforementioned metals that the United States imports from abroad. The moment for the European continent could not be worse, given the renewed pressures on the euro and its architecture due to political instability in Italy and Spain.

The new levies on imports of steel and aluminum came into force as of Thursday night, Treasury Secretary Wilbur Ross told reporters. And they arrive after several weeks of intense negotiations with Brussels, which has tried to prevent until the last moment the tariffs with an intense diplomatic campaign that, in the end, has been sterile. For more than two months the EU has prepared a list of countermeasures to tax US imports worth 6,400 million euros, from food to clothing and footwear, motorcycles, whiskey or batteries, many of them iconic products and manufactured in the states of the main Republican leaders of Congress. None of this has stopped Trump, who has said that "trade wars are good and easy to win." Initially the firm position of Brussels worked. After announcing tariffs on world metal imports at the end of March, the White House excluded the EU and six other allied countries to give room for negotiation and try to extract concessions in other economic areas to rebalance the trade balance in their favor. In the cases of Argentina, Brazil, South Korea and Australia, the exemptions became permanent, but this has not been the case with the rest.

Trump conceives commerce in terms of addition and subtraction exclusively, and faces diplomacy as if he were continuing to negotiate lots in Manhattan. Take out muscle and throw bluffes, punish and retreat. Few things are final; it's the way he negotiates. Hence, it should not be assumed that this is going to be the beginning of a potentially devastating trade war, as suggested by his Commerce Secretary. "We are still quite willing and eager to continue talking with the parties," said Ross. What is clear is that Trump sees the European Union, which is also its main trading partner, as a dispensable ally if he refuses to dance to the sound of his music. He does not mind going free and leaving it in the lurch. He did so a year ago by breaking out of the Paris Climate Agreement and more recently by breaking the nuclear pact with Iran despite European pleas for him to maintain his leadership in both fields. In fact, he is willing to break bones to maintain his criteria, as his Administration showed when he said that there would be consequences for European companies that continue doing business with Iran once Washington reimposes the sanctions.

The White House has resorted to an old law of the cold war times to try to legally sustain tariffs, aware that Brussels intends to dispute them in the courts of the World Trade Organization, the same organization that the United States created with the support of its allies of the European continent to avoid precisely commercial wars and resolve disputes peacefully. Washington argues that the protection of its metallurgical industry, damaged like so many others by the global overproduction of steel and aluminum, is a matter of national security. "We think that, without a strong economy, we can not have strong national security," Ross said. It did not help that Europe reminded him that he has nothing to fear because both blocs work for reciprocal security within NATO. Given the increase in tariffs the president of the European Commission, Jean-Claude Juncker, has affirmed that the European Union will respond with additional tariffs on imports from the US. In particular, he has announced that the bloc will "immediately" introduce a dispute in the WTO and announce countermeasures "within a few hours". "It's a bad day for world trade," said Juncker, who described as "completely unacceptable" that a country has imposed "unilateral measures related to world trade."

For its part, the Minister of Foreign Affairs of Germany, Heiko Maas, has described as "illegal" US tariffs, and has asserted that the EU "is prepared to respond adequately" with the corresponding countermeasures. "Our response to the 'US first' can only be that of 'a United Europe'," Maas said in a statement. Also the Mexican Ministry of Economy announced in a statement that will impose measures equivalent to "various products such as flat steel (hot and cold foil, including coated and various tubes), lamps, legs and pork shoulders, sausages and food preparations, apples, grapes, blueberries, various cheeses, among others, up to an amount comparable to the level of the affectation ".In the text of the Economy portfolio, Mexico has indicated that "this type of measures under the criterion of national (US) security are not adequate or justified" and "deeply regrets and reproves" Washington's decision.

In addition, it assured that these protectionist measures "affect and distort international merchandise trade". Likewise, Canadian Foreign Minister Chrystia Freeland has announced tariff "countermeasures" on imports of steel, aluminum and other US products worth up to 16,600 million dollars. Freeland has specified that the countermeasures will be applied to a long list of American products, from rolled steel to playing cards and markers, and announced that they will take effect on July 1. Freeland made the announcement along with Canadian Prime Minister Justin Trudeau, who described as "inconceivable" that Canada could become a threat to the national security of such a close and important ally as the United States. "We have to believe that common sense will prevail at some point, but today we see no signs of it in this action," lamented the prime minister.