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Question marks over US trade policies

Wednesday, June 20, 2018

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WASHINGTON, United States (AFP) — America's new protectionist trade policies make good on President Donald Trump's campaign pledges but come at significant risks. What are the strengths and weaknesses of his trade offensive?

A LONG-STANDING TRADE BEEF

On the campaign trail Trump pledged to put “America First” and denounced free trade pacts as job killers destroying the American industrial base. With the approach of mid-term elections in November, Trump may be seeking to reassure his political base that he has kept his promises.

“Donald Trump is not constrained by the establishment,” Edward Alden, a trade expert at the Council on Foreign Relations, told AFP. “He continues to puzzle foreign leaders, but if you look at what he said during his campaign and for many years before that, none of this is a surprise. He is doing precisely what he said he is going to do.”

WHAT ARE ITS STRENGTHS?

China accounts for about half of the soaring US trade deficit in goods (last year the goods trade gap with China stood at a record US$375.2 billion). This leaves China far more exposed to Trump's tariffs than vice versa. Last year the United States exported US$130.4 billion in goods to China, but imported US$505.6 billion.

WHAT ARE THE UNKNOWNS?

By announcing tariffs on US$50 billion in Chinese imports and threatening tariffs on up to US$400 billion more, Trump is testing an unprecedented, no-holds-barred strategy for which the consequences remain unknown.

“It will be challenging for both sides to find a way to de-escalate these tensions while saving face, and before trade and investment flows between the two countries take a sizable hit,” said Eswar Prasad, professor of trade policy at Cornell University.

Prasad says that given the damage that could occur, “there is still hope that the United States and China will pull back from the brink of an open trade war”.

WHAT ARE THE ECONOMIC RISKS?

The 25 per cent US duties on $50 billion of Chinese goods and 10 per cent on a further US$200 billion — and countermeasures announced by China — could shave 0.3 per cent of Chinese gross domestic product growth and 0.2 per cent from that of the United States between 2019-2020, according to Oxford Economics.

“It will not be easy for the US to identify US$200 billion worth of Chinese imports that it can levy tariffs on without hurting US companies and/or consumers, given the strong involvement of US companies in a large share of China's exports to the US,” Oxford's chief Asia economist Louis Kuijs said in a research note.

WHO SUPPORTS THIS POLICY?

Trump faces increasingly vocal opposition from across the political spectrum and business world, including from within his own Republican Party.

Texas Congressman Kevin Brady, chairman of the powerful House Ways and Means Committee, has expressed concern for industry, farmers, workers and consumers, which he says stand to be affected by Trump's trade policies.

ARE THERE FOREIGN POLICY RISKS?

Trump is relying on China's help to succeed in his efforts to de-nuclearise North Korea.

“He wants a personal relationship with the (leader) of North Korea. He announced he's made good progress. I think he feels he doesn't really need China at this point,” said Alden.

Nevertheless, North Korean leader Kim Jong-un travelled yesterday to China for the third time since March.

Kim briefed Chinese President Xi Jinping on his recent talks with Trump in Singapore, underscoring China's role in the effort to unwind North Korea's nuclear programme.

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