One of the themes that pervaded analyst commentary during the dog days of summer last year was the notion that trade progress with Mexico, Canada and the EU would free up Donald Trump to get more aggressive with China.
That was the give and take – ostensible good news on “new” NAFTA and the hastily convened Rose Garden presser with Jean-Claude Juncker (remember that?) potentially opened the door for heightened tensions with Beijing as the perils of fighting a multi-front trade war receded.
The read-through, then, was that any progress with other nations might actually be “bad” news on net to the extent Trump believed it left him free to pursue a more aggressive stance in talks with Xi.
Now that a deal with China looks to be all but done, the market is left to ponder the threat of auto tariffs against Europe. That threat has cast a pall over European equities (and, to a certain extent, the outlook for the European economy) for the better part of a year.
EU Trade Commissioner Cecilia Malmstrom will meet with Bob Lighthizer on Wednesday in an effort to make progress towards a trans-Atlantic trade deal that would amicably resolve simmering tensions which have, at times, boiled over, to the detriment of European auto shares and market sentiment more broadly.
Well, now, Trump is ratcheting up the pressure on India and Turkey. On Monday, the administration told Congress that Trump intends to do away with key trade concessions that permit duty-free entry for thousands of products from auto parts to textiles.
When you look at what it is Trump is terminating here, you come away laughing because, as usual, the language around the program is overtly lofty, which makes for a highly amusing juxtaposition with Trump’s decision to scrap it.
The move is tied to the “generalized system of preferences“, the goal of which is to “provide opportunities for many of the world’s poorest countries to use trade to grow their economies and climb out of poverty.”
Sounds good, right? Not according to Trump, it doesn’t.
Obviously, this program helps (rather than hurts) the US economy and creates (rather than imperils) jobs in America. Just ask the USTR. To wit:
GSP supports U.S. jobs and helps keep American companies competitive. Moving GSP imports from the docks to U.S. consumers, farmers, and manufacturers supports tens of thousands of jobs in the United States. GSP also boosts American competitiveness by reducing costs of imported inputs used by U.S. companies to manufacture goods in the United States. GSP is especially important to U.S. small businesses, many of which rely on the programs’ duty savings to stay competitive.
Basically, this program provides for the same kind of common sense benefits that everyone who lives in modernity understands are part and parcel of free trade. Or, in other words, this is exactly the kind of program that Trump would try to undermine.
So, Trump will use the excuse that India doesn’t provide fair access to its own markets and that Turkey isn’t actually a developing economy to terminate those countries’ access to GSP status. Turkey had $1.7 billion in imports covered by GSP in 2017.
As far as India is concerned, the move would affect some $5.7 billion worth of goods. But more important than the actual figure – which is relatively minuscule in the grand scheme of things – are the political ramifications. With elections just around the corner, Trump’s broadside comes at a delicate juncture for Modi and could stoke anti-US sentiment in India, a critical strategic partner for America.
“I am taking this step because, after intensive engagement between the United States and the government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India”, Trump said, in his letter to Congress.
India expects a further reduction in the US trade deficit in the years ahead, the country’s commerce ministry said Tuesday, citing higher demand for civilian planes and energy. “Enhanced purchase of US goods such as oil, natural gas and coal led to reduction in trade deficit with India,” the ministry added.
India has a trade surplus of $21.3 billion with the US.
As far as Turkey goes, this comes just eight months after Trump tweeted out a threat to double metals tariffs in retaliation for the Andrew Brunson debacle, worsening the lira’s plunge and prompting a characteristically defiant response from Erdogan who moved to boycott iPhones (in case you weren’t aware, Turks prefer the Vestel Venus anyway).
Who knows how Erdogan will respond to this, but it’s set against the backdrop of Trump’s desperate pullout from Syria, a decision the Pentagon knows amounts to signing the death warrant for Syrian Kurds the US has fought alongside for years. Erdogan will doubtlessly slaughter the YPG once he doesn’t have to worry about accidentally killing a Navy SEAL or other Spec Ops.
In any event, this looks like just another instance of Trump subjugating all manner of strategic, geopolitical concerns to his exceedingly absurd obsession with trade. As usual, it’s by no means clear that his approach to rewriting the rules of international commerce is going to benefit the US at all. In fact, recent reports on the effects of the trade war with China suggest the US economy has suffered from this charade.
But “stable geniuses” gonna stable genius (to speak colloquially), so here we go with yet another escalation.
Trump will have to wait 60 days from Monday’s notification before moving ahead with this latest effort to undercut America’s reputation on the global stage.