Making marshmallows great again?

Author: Ntsekhe Moiloa

He may as well have been lobbing marshmallows. That was the thought that came to mind when it emerged that US president, Donald Trump, was forging ahead with promises to finally make China pay for what he saw as unfair trade practices.

The US president’s much-pilloried proposals to impose tariffs on steel and aluminium products entering the United States appears to be the fulfilment of promises he made on the campaign trail as a presidential candidate. During that period Candidate Trump repeatedly claimed that China was a currency manipulator also that China had “raped” the US economy and stolen manufacturing jobs. By December last year President Trump was being mocked by American unions and political opponents, accused of having blown hot air on the China issue. A week before Christmas Trump released his national security strategy which promised tougher action against Beijing, amongst others threatening to impose tariffs on products of interest to them. The advisor who oversaw the strategy was HR McMaster, Trump’s advisor on national security matters. McMaster’s hawkish stance was supported by the Commerce Department’s Wilbur Ross, the US Trade Representative, Robert Lighthizer, as well as Trump’s advisor on trade, Peter Navarro. Opposed to the ideas was Gary Cohn who resigned as the president’s chief economic advisor after the tariffs were announced, as well as Defense Secretary Jim Mattis and Secretary of State Rex Tillerson.

Back in December the Financial Times quoted an unnamed source speaking about the national security strategy and saying, “It’s like a Peter Navarro PowerPoint presentation.” That remark implies a notable return to prominence for Navarro, whose office was quietly placed under the supervision of Gary Cohn’s National Economic Council in September last year when White House Chief of Staff, John Kelly, set about tamping down chaos in the White House. Kelly’s instructions not only removed direct access to the president for Navarro, but they also included requiring Navarro to copy Cohn in his correspondence. That effectively created a situation where Navarro was fighting his boss for influence on trade policy.

Even if Navarro and Lighthizer’s views were ascendant in the strategy, given that McMaster authorised the document it was quite a turn of attitude for McMaster to stand with Cohn in being concerned about the March decision to implement tariffs on steel and aluminium. Given the growth of the Chinese steel industry over the past several years, Trump may have calculated that targeting these products would bother the Chinese, particularly as China ranks first amongst steel exporting nations. Instead China’s response has been relatively subdued as the country has sat back and watched the EU climb into the ring. China is the world’s largest steel producing nation by a country mile but about 93 percent of its production stays at home. China is at any rate in the process of cleaning up and consolidating its steel industry as its priorities shift towards higher-skill areas of the global economy such as biotech, information technology and green energy technologies. As far as China is concerned, Trump may as well be loading his cannons with marshmallows.

Against the advice of some top staff in his Administration, President Trump went ahead and announced tariffs on steel and aluminium imports. The justification was that this was for national security reasons. The justification was itself drawn from the conclusions of a probe undertaken by Wilbur Ross’ Commerce department under Section 232 of the 1962 Trade Expansion Act. Condemnation flooded in from around the world with the European Union taking centre stage in denouncing Trump. The EU threatened to impose retaliatory tariffs on products ranging from Levi’s blue jeans to bourbon to Harley-Davidson motorcycles. US House Speaker, Paul Ryan, in whose state Harley-Davidson is based publicly pleaded for Trump to walk back his threats.

Trump did what Trump does and instead put his fingers in his ears. But then he indicated that he was open to exemptions for Canada and Mexico. This matters for a few reasons. First, the EU accounts for not a whole lot of steel imports into the US, for example. Mexico and Canada are the largest external providers by a long stretch. Carving out exemptions for them undermines the whole national security argument. Secondly, under WTO rules the EU was unlikely to be allowed to implement the retaliatory tariffs it had threatened, but was rather supposed to undertake an objection procedure that could take a year to three to resolve. A national security case has not previously been argued at the WTO so a precedent-setting legal challenge for the EU would have been tougher. By potentially granting exemptions to Mexico and Canada, the US has weakened its defence under the national security argument to a mattress firmness more akin to that of marshmallows.