Ignatius: Trump should declare win in trade wars and move on

By David Ignatius

If President Trump is the dealmaker he claims to be, he should use the upcoming G-20 summit in Buenos Aires to declare a win in his trade war with China — before his bombast does any more damage to the global economy.

Trade is Trump’s signature issue. But more than a year after he began threatening tariffs on major trading partners, he has relatively little to show for it. The improvements in NAFTA are modest, at best. The U.S. economy hasn’t suffered significantly, but global growth is beginning to slow, and trade jitters are one reason.

The International Monetary Fund warned last month that it was lowering its global growth projections by 0.2 percentage points for 2018 and 2019, in part because of “rising trade barriers.” The IMF explained: “Escalating trade tensions and the potential shift away from a multilateral, rules-based trading system are key threats to the global outlook. … An increase in trade barriers would disrupt global supply chains … and slow the spread of new technologies, ultimately lowering global productivity and welfare.”

The Trump administration’s trade strategy has been a gradual march toward the cliff, as summarized in a timeline prepared by the Peterson Economic Institute. First came the Oct. 31, 2017, recommendations for tariffs on washing machines and solar panels, which were imposed in January 2018 on about $10 billion in imports of these products, the first such tariff requests since 2001 and a small but telling warning shot.

The big guns were rolled out by the Commerce Department in its February 2018 recommendation for tariffs on steel and aluminum under the rarely used “national security” authority of Section 232 of the Trade Expansion Act of 1962. The tariffs were steep — 25 percent for steel and 10 percent for aluminum — and they heavily targeted allies. Some trading partners got exemptions, but the tariffs were re-imposed on countries that Trump wanted to squeeze, such as Canada and Mexico.

Trump evidently imagined that Section 232 tariffs would force Mexico and Canada to capitulate in revising NAFTA. That didn’t happen. The new U.S.-Mexico-Canada Agreement is a modest improvement, with some better protections for workers. But one negotiator estimates that 85 percent of the improvements in the deal were lifted from the Trans-Pacific Partnership, which Trump had scuttled when he first took office.

The downside of Trump’s trade isolationism is illustrated by the fact that the TPP is going ahead without the United States. Seven countries have already endorsed the pact, and that number is likely to grow to 11 by the end of December, when the TPP takes effect. The pact will cut tariffs on agricultural and industrial products, ease foreign investment and protect intellectual property, all potential benefits for the U.S. that will be lost.

The main adversary in the trade war, of course, has been China. In July, Trump imposed 25 percent tariffs on $34 billion in products, and then in September added another $200 billion after threatening tariffs on all Chinese products. What the administration hadn’t considered carefully enough was the blowback of these tariffs for U.S. manufacturers that use Chinese products. A similar misunderstanding about global supply chains undermined the campaigns against Mexico and Canada. To be blunt, this is a trade-focused administration that doesn’t seem to understand how global trade really works in 2018.

“This is not a normal negotiation with normal people,” commented a Canadian business leader who has watched Trump’s negotiators try to bully concessions from Canada, with limited success.

U.S. businesses that are getting caught in the trade backfire are protesting more loudly. This week, nearly 40 organizations representing retailers, manufacturers and farmers sent U.S. Trade Representative Robert Lighthzer a letter demanding removal of the Section 232 tariffs on steel and aluminum still imposed on Mexico and Canada. The industry groups warned that they want to support a new USMCA pact, but only if it “benefits … our long-term ability to survive in a global economy.”

A potential showdown will come when Trump and Chinese President Xi Jinping meet in Buenos Aires during the G-20 talks, which begin Nov. 30. Trump has pressured China with his usual threats and economic penalties. Now, if the North Korea nuclear negotiations and NAFTA are any guide, he will move toward a deal that makes limited changes to the status quo, but which he can tout as a victory.

Nearly two years on, Trump’s trade policies seem like a very big windup for a puny pitch. He could hold out for more — and go to full battle stations in the trade conflict — but that would be a mistake and especially harmful for Trump supporters in manufacturing.

Follow David Ignatius on Twitter @IgnatiusPost.