On 21 March US President Donald Trump signed a Presidential Memorandum targeting China and demanding “a true reciprocal trade agreement”. (Official White House, photo by Shealah Craighead).
Last Friday, President Donald Trump again surprised the world by imposing new import tariffs on Chinese products of a value of $60 billion and deferring the imposition of import super levies on European Union steel and aluminum for 1st May. In the latter case he also postponed the new tariffs for another six exporting countries (Argentine, Australia, Brazil, South Korea, Mexico and Canada).
In this matter, the US has accorded the benefit of doubt to America’s closest allies. Given that, it’s obvious that the White House chose to single out and target China. It said the US will also greatly restrict and possibly fully block the transfer of American technology to this country and rigorously screen the acquisition of US assets by Chinese interests.
Stocks felt the heat
Despite the fact that those decisions by the President of “Make America Great Again” were rather less severe than his rhetoric meant, capital markets all over the world considered them as quite dangerous. Stocks were further depressed in all major markets and the usual safe havens like bonds gained grounds. The impact was more severe for the Tokyo Stock Exchange.
The Nikkei – 225 stock index lost 4.51% in a few hours, mainly because Japan was not excluded as the European Union (28 countries) and the other six exporters from the tariffs of 25% and 10% respectively, on steel and aluminum imports. The new import levies on those products started being imposed by the US customs authorities as of 00.01 hours last Friday.
The EU to be scrutinized
Regarding the deference of tariffs on steel and aluminum for the 28 countries of the European Union plus the other six, Washington has a twofold target. Firstly, for at least some time it wants to punish only Chinese exports. On the other hand, Washington seems ready to press hard the Europeans for a major overhaul of their trade relations. The EU will very probably be asked to reduce its own import taxes on American products in return for a permanent exoneration from the steel and aluminum super levies.
More importantly, Brussels will also be asked, even blackmailed, to reduce or abolish its non tariff barriers to imports. It’s about the complex EU edifice of detailed and in cases peculiar product specifications or other characteristics related to health and environmental issues that imported goods have to respect. In this context the European automotive market and the agro-food sector will be the first to feel the pressures of the American negotiators, asking for detailed ‘disarmament’ of the alleged unfair internal EU market protection with non-tariff measures.
Presidential Proclamations
Trump is quite clear on that in signing the relevant Presidential Proclamation on 22 March entitled “Adjusting Imports of Aluminum into the United States” which exempts the EU from the new levies. A twin Proclamation was signed for steel. Then, the White House issued a statement saying “By May 1, 2018, the President will decide whether to continue to exempt these countries from the tariffs, based on the status of the discussions. The European Union will negotiate on behalf of its member countries.”
In short, the temporary exemption of the EU from the steel and aluminum tariffs is just an obliging gesture. During the next two months the Europeans have to accept deep changes in their trade relations with the US. Washington is determined to overhaul the trade over the Atlantic, to the detriment of the eastern shores of the Ocean. Nothing will be as before. The same is true for other great Ocean, the Pacific.
Chinese moderation
Even before Trump announced the new tariffs on Chinese products and the other restrictions on Chino-American economic relations, Beijing had stated it will retaliate by imposing extra import taxes on US products. However, in comparison to Washington’s tariffs on Chinese goods of $60bn, the Chinese trade authorities restricted their own action only on American products of a value of just $3bn. This is visibly a gesture of good will and seemingly Beijing will be happy if this tit for tat stops here.
All in all, Trump’s trade wars have started in earnest. The truth is, though, that Washington’s action is less aggressive than the Presidential rhetoric connoted. During the next few weeks it will become clear if the administration’s moderative approach is to prevail. In any case, stock markets felt the heat last Friday. The bubble-like pricing levels there don’t seem able to withstand even the slightest tremor. But this is another story, as Rudyard Kipling would have said.
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