The US Strongarms the World and Gets Left Behind


 

 

In any other year, the President of the United States declaring a key trade advisor the “Lobster King” would be a headline worthy of more than one double-take. In 2020, even this news seems commonplace. On Friday June 5th at an event with commercial fishermen, President Donald Trump threatened to impose tariffs on European cars if the EU does not drop its tariffs on American Lobsters. Trump also asked his trade advisor Peter Navarro to identify new Chinese goods to place tariffs on if Beijing does not remove its duties on lobsters, declaring “Peter Navarro is going to be the lobster king now”.

 

As comical as this may seem, Trump’s “lobster king” promise is yet another example of his administration’s weaponization of trade policy. What’s new is that this unilateral coercion has so far been mostly limited to the current trade war between China and the US. This may no longer be the case, as the administration considers Section 301 investigations into South American countries adopting digital service taxes as well.

 

US tariffs in the trade war with China were also justified under Section 301 of the Trade Act of 1974, which allows the US president to address “unfair barriers” to US exports. In China’s case, government policies requiring American multinationals to engage in Joint-Ventures with Chinese corporations, investment in or acquisition of American assets, and other practices related to intellectual property were perceived as limiting the competitiveness of US businesses[1] in the Chinese market.

 

Concerning both American lobsters and digital services, the Trump administration appears to be again entertaining the option of using a similar strategy to pursue other economic objectives. Why should America negotiate with trade partners for a better deal when we can just use trade barriers, justified by removing unfair barriers to US exports, to strongarm not just China, but the EU and Latin American markets as well into playing by our rules?

 

Some readers may remember that closer to the beginning of the US-China trade war, the Trump Administration similarly imposed tariffs on steel and aluminum goods from the EU, Canada, and Mexico. The administration even threatened similar taxes on European cars then. The difference is that in 2018 protectionist tariff measures were seen as outlandish, going against “all logic and history” as the president of the EU commission decried then.

 

What was once seen as “more than highly unusual… [even] unprecedented” has become the new norm two years later. Threats of new tariffs, on exported seafood or otherwise, seem to appear every other week with modest media attention or scrutiny. Two years later, tariffs are just the administration’s preferred way of getting things done.

 

This strategy of unilateral pressure in trade is not limited just to Section 301 tariffs, though. The other part of the US-China trade war is the entities list, used to address national security concerns with regards to international trade and supply chains. Under the justification of protecting the security of the United States’ telecommunications infrastructure, the entities list was used to prevent Huawei, China’s darling tech giant, from accessing both US suppliers and public buyers.

 

As the Section 301 tariffs widen the Trump Administration’s application of trade policy to multiple markets beyond the US-China trade war, recent developments within the entities list have simultaneously deepened the application of trade barriers within the US-China trade war. In May of 2020 the US Department of Commerce tightened existing restrictions on Huawei while adding 33 new Chinese entities to the entities list as well.

 

Unlike the Huawei case, these new additions had little, if any direct relationship with American national security. Multiple entities were identified as supplying US goods for use in surveillance practices and human rights violations in the Xinjiang Uighur Autonomous Region of China. Human rights abuses in Xinjiang are undeniably important and must be addressed. However, this is almost entirely a domestic issue within Chinese politics and governance. The deepening of the US-China trade war has moved beyond trade imbalances and IP theft towards broader issues that the US and China disagree on today.

 

Though these recent developments seem to be for reasonably commendable ends, there are two key issues with this extension of the Trump Administration’s coercive trade policy. Section 301 tariffs may appear to be pushing for a better deal for US exports and producers, but recent economic research has demonstrated that in reality, nearly all of the economic costs of such barriers have fallen on US importers and consumers[2]. Rather than getting a better deal, Americans are paying more out of their own pockets.

 

Commentators also question the efficacy of new entities list export restrictions outside of the original limitations on Huawei. The Huawei strategy was particularly effective in large due to the concentration of the international semiconductor industry. Since the US has a near monopoly on semiconductor producers and technologies, export restrictions were highly effective in limiting Huawei’s capabilities. New additions to the entities list include software companies like Qihoo 360, which operate in less obviously dependent industries that may not be as vulnerable to such export restrictions.

 

More substantially, as the world continues to grow more deeply connected this US strategy of unilateral pressure may result in a US that becomes increasingly left behind. The Regional Comprehensive Economic Partnership (RCEP) is set to be signed in 2020, creating the world’s largest trade bloc among 15 countries in the Asia-Pacific. The US is not included in RCEP.

 

Even as the US pulled out of its own trade deal counterbalancing RCEP, Asia-Pacific nations carried on to sign the CPTPP even in the absence of US leadership. The world is carrying on in spite of a receding United States, as nations in the periphery of the US-China trade war turn more to trade, not less, to cope with the economic costs spilling over from unilaterally using trade for political gain. As the US tries to strongarm the world with trade barriers, the Trump administration has created a power vacuum that China may seek to fill entirely.

 

Many had hoped that as the US-China trade war carried on, economic costs would encourage the two economic superpowers to seek progress through negotiation and collaboration, especially in the midst of a global pandemic crippling economies worldwide. Recent developments including the seemingly comical story of Trump’s Lobster King suggest otherwise. Instead of the US leading the world with China as an emerging power, the world will either carry on by itself without a clear leading economy or with China at the head and the US left out entirely.

 

Covid-19 will change our international economy forever and many argue that the Trump administration’s protectionism is just a forerunner of how all global economies will operate in the near future. This is likely not the case, as globalization has weathered many similar shocks in recent history. The coronavirus is more likely to be a “bend but won’t break” crisis for globalization, reorganizing supply chains and trade blocs but not coming close to eliminating international trade altogether.

 

The pandemic may instead result in an international economy more dependent on the exchange of services as international trade in goods declines even further, services less vulnerable to tariff barriers and Section 301 strategies. Multilateralism may see a resurgence as the world walks back from connecting globally to connecting in regions, raising the stakes for global leadership in the various trade blocs that emerge. These are all possible futures at an uncertain crossroads for the global economy.

 

There is undoubtedly a time and a place for tariffs and trade barriers, but trade policy should be used as a scalpel for a few key issues, not a hammer for all issues across a variety of different nations. Throwing up too many walls may simply isolate American interests and agendas altogether. To ensure that America’s national interests remain relevant in a continually globalizing world, our administration may benefit from occasionally considering the slow route of negotiation and cooperation.

 

[1] Office of the United States Trade Representative 2018

[2] Amiti, Redding, and Weinstein David E. 2020. Who’s Paying for the US Tariffs? A Longer-Term Perspective. Working Paper 26610. Cambridge, Mass.: National Bureau of Economic Research.


About Vincent Shan

Vincent is a 4th Year undergraduate student at UC Berkeley studying Political Economy and Data Science. In addition to serving as a Research Assistant at BASC, Vincent has interned in Economic Consulting and is currently pursuing a career at the intersection of business and governmental policy.

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