Trump may look like he's winning the trade war, but hurdles remain

Straits Times

16 hours ago

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Mr Trump's tariffs, tax cuts, deregulation and policies to boost energy production would take time to play out.
WASHINGTON - At a glance, US President Donald Trump appears to be winning the trade war he unleashed after returning to the White House in January, bending major trading partners to his will, imposing double-digit tariff rates on nearly all imports, narrowing the trade deficit, and raking in tens of billions of dollars a month in much-needed cash for federal government coffers.
Significant hurdles remain, however, including whether US trading partners will make good on investment and goods-purchase commitments, how much tariffs will drive up inflation or stymie demand and growth, and whether the courts allow many of his ad-hoc levies to stand.
On inauguration day, the effective US tariff rate was about 2.5 per cent.
It has since jumped to somewhere between 17 per cent and 19 per cent, according to a range of estimates.
The Atlantic Council estimates it will edge closer to 20 per cent, the highest in a century, with higher duties taking effect on Aug 7.
Trading partners have largely refrained from retaliatory tariffs, sparing the global economy from a more painful tit-for-tat trade war.
Data on Aug 5 showed a 16 per cent narrowing of the US trade deficit in June, while the US trade gap with China shrank to its smallest in more than 21 years.
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American consumers have shown themselves to be more resilient than expected, but some recent data indicate the tariffs are already affecting jobs, growth and inflation.
"The question is, what does winning mean?" said Mr Josh Lipsky, who heads economic studies at the Atlantic Council.
"He's raising tariffs on the rest of the world and avoiding a retaliatory trade war far easier than even he anticipated, but the bigger question is what effect does that have on the US economy."
Mr Michael Strain, head of economic policy studies at the conservative American Enterprise Institute, said Mr Trump's geopolitical victories could prove hollow.
"In a geopolitical sense, Trump's obviously getting tons of concessions from other countries, but in an economic sense, he's not winning the trade war," he said.
"What we're seeing is that he is more willing to inflict economic harm on Americans than other countries are willing to inflict on their nations. And I think of that as losing."
Ms Kelly Ann Shaw, a White House trade adviser during Mr Trump's first term who is now a partner at Akin Gump Strauss Hauer & Feld, said a still-strong economy and near-record-high stock prices "support a more aggressive tariff strategy."
But Mr Trump's tariffs, tax cuts, deregulation and policies to boost energy production would take time to play out.
"I think history will judge these policies, but he is the first president in my lifetime to make major changes to the global trading system," she added.
Deals so far
Mr Trump has concluded eight framework agreements
with the European Union , Japan, Britain, South Korea, Vietnam, Indonesia, Pakistan and the Philippines that impose tariffs on their goods ranging from 10 per cent to 20 per cent.
That's well short of the "90 deals in 90 days" administration officials had touted in April, but they account for some 40 per cent of US trade flows.
Adding in China, currently saddled with a 30 per cent levy on its goods but likely to win another reprieve from even higher tariffs before an August 12 deadline, would raise that to nearly 54 per cent.
Deals aside, many of Mr Trump's tariff actions have been mercurial.
On Aug 6, he ratcheted up pressure on India,
doubling new tariffs on goods from there to 50 per cent from 25 per cent because of its imports of oil from Russia.
The same rate is in store for goods from Brazil, after Mr Trump complained about its prosecution of former leader Jair Bolsonaro, a Mr Trump ally.
And Switzerland, which Mr Trump had previously praised,
is facing 39 per cent tariffs after a conversation between its leader and Mr Trump derailed a deal.
Mr Ryan Majerus, a trade lawyer who worked in both the first Trump administration and the Biden government, said what's been announced so far fails to address "longstanding, politically entrenched trade issues" that have bothered US policymakers for decades, and getting there would likely take "months, if not years."
He also noted they lack specific enforcement mechanisms for the big investments announced, including US$550 billion (S$706.19 billion) for Japan and US$600 billion for the EU.
Promises and risks
Critics lit into European Commission President Ursula von der Leyen after she agreed to a 15 per cent tariff during a surprise meeting with Mr Trump during his trip to Scotland in July, while gaining little in return.
The deal frustrated winemakers and farmers, who had sought a zero-for-zero tariff.
Mr Francois-Xavier Huard, head of France's FNIL national dairy sector federation, said 15 per cent was better than the threatened 30 per cent, but would still cost dairy farmers millions of euros.
European experts say Dr von der Leyen's move did avert higher tariffs, calmed tensions with Mr Trump, averting potentially higher duties on semiconductors, pharmaceuticals and cars, while making largely symbolic pledges to buy US$750 billion of US strategic goods and invest over US$600 billion.
Meeting those pledges will fall to individual EU members and companies, and cannot be mandated by Brussels, trade experts and analysts note.
US officials insist Mr Trump can re-impose higher tariffs if he believes the EU, Japan or others are not honouring their commitments.
But it remains unclear how that would be policed.
And history offers a caution.
China, with its state-run economy, never met its modest purchase agreements under Mr Trump's Phase 1 US-China trade deal. Holding it to account proved difficult for the subsequent Biden administration.
"All of it is untested. The EU, Japan and South Korea are going to have to figure out how to operationalise this," Ms Shaw said.
"It's not just government purchases. It's getting the private sector motivated to either make investments or back loans, or to purchase certain commodities."
And lastly, the main premise for the tariffs Mr Trump has imposed unilaterally faces legal challenges.
His legal team met with stiff questioning during appellate court oral arguments over his novel use of the 1977 International Emergency Economic Powers Act, historically used for sanctioning enemies or freezing their assets, to justify his tariffs.
A ruling could come any time, and regardless of the outcome seems destined to be settled ultimately by the Supreme Court. REUTERS