Trump ignites a trade war and replaces NAFTA

Trump ignites a trade war and replaces NAFTA

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Shatha Khalil *

US influence in the world depends in part on its trade policies, and the risk of US President Donald Trump’s decision to impose a 25 percent tariff on US steel imports and 10 percent on aluminum imports warns that the United States is losing its international political space faster than It is now , according to the observers .

Trump justified the decision that the United States “was looted commercially for years by other countries, and that the fees are necessary to protect the national security of the United States, which is alleged to have deteriorated due to the decline of local steel and aluminum industries.

Director- General of World Trade Organization (WTO) ,Roberto Azevedo said the organization was concerned with Trump’s decision to impose tariffs on US steel and aluminum imports from around the world, pointing out that the decision was a real escalation and the start of a trade war damaging Washington’s closest allies where Germany, Japan and South Korea are among the top 10 exporters of steel to the United States, and China is the eleventh.
What is the role of the WTO
Trump was based on a rare-use trade law in the tariff decision issued in 1962 that gives the president the power to impose such duties.
In April 2017, the US Department of Commerce began an investigation into whether steel and aluminum imports “weakened the national security” of the country and has concluded in early 2018 that it had already done so, giving the excuse to the Trump for the application of fees as he sees appropriate.
Economists have warned that using Trump’s argument to protect national security to impose tariffs could undermine the framework of global trade rules built after World War II and open the door to other countries to use the pretext of national security for similar exceptions.
It is worth to be noted that what could ease the pressure on China in the WTO, if national security becomes an acceptable justification for trade protection policies, Beijing could increase its discriminatory practices and increase the ban on US imports and investments.
The Washington Post published reports of researchers Jonathan Moyer and David Boehl that the adoption of the imposition of tariffs on imports of steel and aluminum is a dangerous move, sparking a trade war with US allies before its opponents and risks weakening US influence in the world noting that the trade has a wide impact.
Many economic experts and analysts believe US trade protection policies will allow China, the world’s trading giant, to expand its influence, especially as the United States withdraws from the Trans- Pacific Trade Partnership Agreement (PTA).
Some economists say previous experiences by US presidents show that such fees may most likely fail to restore the momentum of domestic producers, given the high costs of economic growth.

And those fees could trigger a trade war that would undermine the global trading system and hurt some of the powerful allies of the United States, such as Canada.

In a scenario in which the United States imposes tariffs on the coming goods and services and the rise of trade protectionism in the face of trade disputes, the future scope of US influence will be declined in favor of China in Asia, which includes countries such as Indonesia and Pakistan noting that they are strategically important for the United States.
What are US tariffs?
US Trade Secretary Wilbur Ross announced the start of imposing a 25 percent tariff on steel imports and 10 percent on aluminum imports.
Tariffs are imposed on such types as coated steel, alloys, aluminum and pipes, they are raw materials widely used in various industries, construction and oil industry in the United States.
Canada, Mexico and the European Union jointly exported $ 23 billion worth of steel and aluminum to the United States in 2017, nearly half of the total $ 48 billion in steel and aluminum imports last year.
Why Trump’s decision to charge?
• Protecting US industry, particularly steel, as the cornerstone of the 2016 Presidential Trump campaign, after labor in the steel sector fell from about 650,000 worker in the 1950s to about 140,000 worker.
• The success of the steel plan could be more likely to make Trump’s chances higher in the midterm elections, as many closed steel plants are spread in swinging states such as Pennsylvania.
• To address the steel crisis as the most major US steel and aluminum producers welcomed the decision. The US Iron and Steel Institute thanked Trump for tackling the crisis and the second largest aluminum producer in the United States ( Centurium Aluminum ) said the measures would spur them to increase domestic investment.
German Chancellor Angela Merkel warned of the seriousness of the situation, describing the new duties with contempt for partners close to the United States, while European Commissioner for Trade Cecilia Malmstrom pledged to take countermeasures if duties are imposed on European exports declaring more customs duties to be imposed on US productions.

The EU and Canada have threatened to respond to the US decision, while French Finance Minister Bruno Le Mire has warned of a war that could begin within a few days, a warning that was endorsed by Larry Cudlow, chief economic adviser to President Donald Trump.
The EU issued a 10-page list of US goods that will be subject to tariffs in response to the Trump decision, from Harley-Davidson motorcycles to whiskey products.
Canadian Prime Minister Justin Trudeau said he would file a case against the United States at the World Trade Organization.
The US tariff crisis could spark widespread anger at target countries that may take retaliatory action rather than impose similar tariffs or sue America.
What angers the target countries in the US decision is its widespread application, rather than targeting countries that violate international trade rules such as China, which could trigger a trade war.
Aluminum and steel producers around the world blame the Chinese government for subsidizing the production of these two minerals, bypassing world trade rules, flooding the world market with low-cost products that have led to lower prices.

Trump is not the first US president to impose duties. A number of former presidents imposed tariffs and other trade barriers to protect the US industry from cheap foreign imports.
Presidents Lyndon Johnson, Richard Nixon, Jimmy Carter and Ronald Reagan applied for shares or set import limits.
But economic studies have concluded that these measures have done little to stop the deterioration of the steel and aluminum industry in the United States.
“When America imposed a fee on steel imports from Europe in the past, the result was that thousands lost jobs in the United States,” said European Commission Vice President Gerki Katainen.

NAFTA Convention:
The North American Free Trade Agreement (NAFTA), which is known as NAFTA, dates back to 1989 when a free trade agreement between the United States and Canada was signed which, includes the free trade between them before officially joining Mexico five years later.
The trade agreement between the three countries includes the creation of a “trade zone”. The United States, Canada and Mexico are among the world’s largest trading blocs, and came into force in 1994 and it returned to the spotlight after US President Donald Trump threatened to exit from it or to renegotiate about it .

Among the objectives of the Convention:
The establishment of a free trade area among them, the removal of tariff barriers, the lifting of tax restrictions and the opening of trade between the three North American countries to increase growth and strengthen trade exchange between them, ultimately creating the largest consumer zone benefiting from the benefits and opportunities of free trade.
• Help small business owners by reducing costs, facilitate sales and purchases, remove trade barriers and eliminate tariffs between the three countries for about 9,000 commodities within 15 years, and facilitate trade transit between their founding countries.

Trump stressed the difficulty of negotiating between the United States, Canada and Mexico, preferring to sign two separate agreements with each of the two countries separately.
“I have no objection to seeing a separate agreement with Canada where we have a certain type of product, and another with Mexico,” Trump said in a statement.
And “they are very different countries” and NAFTA is “a bad deal for the United States”. “We are losing a lot of money with Canada and we are losing wealth with Mexico.
Trump put forward the new proposal amid global trade confrontations that escalated with the administration finally imposing strict tariffs on imports of steel and aluminum from the European Union, Canada and Mexico, even though they are historic allies of the United States.

US Commerce Secretary Wilbur Ross acknowledged there was no specific “date” for completing the ongoing talks and stressed that his administration gave preference to concluding bilateral agreements instead of a pluralistic system of endless discussions.

Trump greatly underestimates the US trade deficit to Mexico, which amounted to $ 2017 billion, often speaking of the deficit in the exchange of goods, the balance of trade remains in the interest of the United States in terms of services.

With Canada, the United States has a trade surplus of $ 2 billion, offsetting the exchange of services by far difference from deficit amounted by $ 23 billion on the level of commodity, according to official US figures.
The three countries appeared to be under intense pressure to complete the NAFTA review and hoped for a “very good deal” according to Ottawa.
Trump linked the fate of the NAFTA negotiations to the issue of heavy tariffs on steel and aluminum noting that Canada is the main supplier of steel to the United States.

Canadian Prime Minister Justin Trudeau said the strict taxes are “unacceptable” and said it was “an insult to the long-standing security partnership between Canada and the United States and an insult to the thousands of Canadians who fought and dead alongside their brothers in arms, Americans.”

Ottawa practically responded by announcing to impose custom duties on US products worth a Canadian $ 16.6 billion (US $ 12.8 billion).
Canadian Finance Minister Bill Morneau admitted at a meeting of G7 finance ministers held in Whistler, Canada, that “the discussions will obviously be difficult” and caused the escalating trade dispute between the world’s largest economies and the dispute among the Allies.
Canadian Finance Minister Bill Morneau said the G7 representatives would oppose Washington’s decision to impose tariffs on steel and aluminum that went into effect. “It is clear that the talks will be difficult,” he said. “We are preparing this response as a way to bring the Americans back to the negotiating table.””Canada is not a security threat, so we have to move forward on a different basis.” He pointed out that the US fees have weakened hopes for the success of negotiations to amend the North American Free Trade Agreement (NAFTA).

Economic Studies Unit
Rawabet Center for Research and Strategic Studies