Beginning of a Tectonic Shift on Trade?
June 18, 2018
It is likely that I am reading too much into things, but over the past 10 days I have detected two small shifts in thinking about trade, which do not immediately amount to much but which could well be a sign of more significant change in the future.
The first is increased pushback from our friends and allies, particularly against the steel and aluminum tariffs and, prospectively, against the likely automobile tariffs. The G7 meeting in Quebec suggests that an attitude adjustment is underway. The Europeans in particular, along with the Canadians, seem to be moving away from a strategy of flattery and appeasement and toward one of more direct confrontation and measured retaliation. They were stung not only by the tariffs themselves, and their expected impact on their companies and workers, but also by the national security rationale that the United States used to justify them. While they would not entirely reject the theory that both commodities are relevant to a nation’s security, the idea that countries that are formal allies and have a long history of standing together against common security threats have suddenly become “threats” is, as Canadian prime minister Justin Trudeau put it, “insulting.” Despite the children’s chant about sticks and stones, words do make a difference; they do hurt; and they appear to have done so in this case. The fact that the president regularly undercuts his own argument by linking the action to other matters, like Canada’s dairy program or EU auto tariffs, dramatizes the hypocrisy of the U.S. position and only makes matters worse.
This situation will get worse before it gets better. While it appears the strategy of a soft response has not worked, there is little to suggest that more aggressive pushback will work better. The post-G7 spat between Trudeau and Trump was instructive. The prime minister did to the president exactly what the president has done to him multiple times—have a happy meeting and then make critical statements in public (nothing, by the way, that the prime minister had not said previously). What we learned from this episode is that the president can dish it out but can’t take it. Our allies may be pushing back harder for their own domestic political reasons or because other strategies have not worked, but they should not expect significantly different results, at least in the short run. The president’s normal response is simply to return the push even harder.
The second small tectonic shift may be occurring in the Congress. It is well known that a significant number of representatives and senators are intensely uncomfortable with the president’s trade policies, and most of those are in his own party. There has been a good bit of moaning and whining and serious private attempts to persuade the president to change course, but there has been no visible attempt to do anything about it.
That changed in the past week in the form of a Senate amendment that would reverse the decision to mitigate the penalty on Chinese telecommunications company ZTE and in an attempt by Sen. Bob Corker (R-TN) to claw back congressional authority over tariffs by making the steel and aluminum tariffs retroactively subject to congressional approval. The two measures have, so far, had different fates. The ZTE amendment is in the Senate defense authorization bill, which means it will be an issue in the House-Senate conference, since the House bill does not contain the provision. The odds are that it will be weakened there but not removed entirely. Sen. Corker’s efforts were rebuffed on the Senate floor, which has led to several testy exchanges between senators about whether the Senate is afraid of the president and has failed to fulfill its constitutional responsibilities. The main difference between the two amendments is that one is about China and the other is about how we treat our friends. Members of Congress appear willing to break with the president when they regard him as “soft” on China but not when he insults our allies. The more important question is why so many of them who clearly oppose what the president is doing are unwilling to do anything about it. The answer is not a secret. It’s politics. The president doesn’t hesitate to strike at people who oppose him, and that strategy works often enough (as Rep. Mark Sanford [R-SC] discovered last Tuesday) to intimidate the others. It is not lost on the cowed masses on the Hill that the few who have stood up are the ones that are retiring and have nothing to lose, except for their integrity, if they remain silent.
I usually try to resist falling into the geezer trap of arguing that things were a lot different way back when I worked there (1973–1993), but there is some truth to it. The country was blessed at that time to have representatives and senators in both parties who were not afraid to speak their minds and stand up to the president if their beliefs required it, and we were fortunate to have leaders at least as interested in doing the right thing as they were in gaining partisan advantage.
Last week’s Senate actions represent a small—very small—step back in that direction, but I sense a tipping point may be coming when others too discover that they are indeed vertebrates. Whether that will be over a trade war with China, auto tariffs, or withdrawal from the North American Free Trade Agreement (NAFTA), or all of them, is impossible to predict, but the Senate has begun to lay the foundation for more organized resistance, and we should stay tuned. Meanwhile, Sen. Corker should be congratulated for remembering that his oath was to the Constitution and not to the president or the Republican Party.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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