By John Whelan
The leaders from the group of the seven richest nations, at the G7 Summit in Canada at the weekend, failed to agree on any substantive measures to reduce the fears of a full-blown trade war with the US.
US president, Donald Trump, offered no olive branch to ease the tension over tariffs on steel and aluminium, nor over the Iran sanctions, before he left to prepare for his meeting with North Korean leader, Kim Jong Un, where his brinkmanship tactics may be more appreciated.
Ratcheting up the international trade tension further, the Trump administration said that at the end of the week it would announce a final list of Chinese products to be tariffed.
It plans to introduce tariffs on $50bn (€42.5bn) of imports from China, as its first target. By the end of the month, it plans to have announced investment restrictions on Chinese acquisition of US technology.
The Beijing government has countered with its threat to pull out of trade negotiations, if the US goes ahead with these tariff and with investment measures.
Ironically, the continued sabre-rattling comes at a time when the US trade deficit has narrowed for the second straight month, in April, shrinking 2%, to $46.2bn, as exports surged and imports faltered, according to the most recent data from the US Department of Commerce’s Bureau of Economic Analysis.
One of the main concerns among the G7 leaders in Canada was the use by the White House of legislation that does not require Congressional approval, before the president can introduce tariffs on imports on the basis of national security.
Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!— Donald J. Trump (@realDonaldTrump) June 9, 2018
This was the basis of Trump’s recent tariffs on steel and aluminium and it enabled him to skirt around all the normal rules of international trade agreements.
The concern is that if unchallenged, the president may use the national security threat as the reason to introduce tariffs on any imports.
The US’s largest trade deficits are in automobiles, petroleum, and cell phones. Trump wants to reduce these deficits with protectionist measures. He has already threatened a 25% tariff on German car imports.
This creates a very unstable international environment, which may shift tariff imposition very quickly from one product to another, creating havoc for businesses caught in the crosshairs.
Ireland, which, to date, has not been affected to any great extent, could, at short notice, become entangled. Just 12 months ago, makers of cars and air conditioners were tweet-attacked by Trump, before he set his sights on pharmaceutical companies.
In his first press conference after his election, Trump lumped drug firms in with the car companies, which had borne the brunt of his Twitter feed for moving operations abroad. “We’ve got to get our drug industry back,” he said. “They supply our drugs, but they don’t make them here, to a large extent,” he tweeted.
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!— Donald J. Trump (@realDonaldTrump) June 9, 2018
Pharmaceutical stocks around the world plunged, and have since been weighed down partly by Trump’s promise to cut US drug prices, but also on concerns that companies could face the same choice he’s proposed for carmakers: Make it in the US, or face punitive tariffs.
In 2015, the US’s top-five sources of pharmaceutical imports by value were Ireland, Germany, the UK, Switzerland, and India.
The World Bank’s recent warning that the worldwide escalation of the trade tensions between the US and its major trading partners would have consequences for global trade equivalent to the 2008 financial crisis sounded a bit louder this weekend.
John Whelan is an expert on trade.