Trump declares war on allies, befriends foes


Street Talk


President Donald Trump has been all praise for North Korea’s Kim Jong Un and has yet to say anything negative about Russia’s Vladimir Putin. On the other hand, Trump was the classic Contrarian in the recently concluded G-7 Summit in Canada and he has engaged in a war of words with Canadian Prime Minister Justin Trudeau.

That war of words has fanned the beginning of a trade war between Canada and the US, initiated by Trump and responded to by Trudeau.

Actually, it’s not just with Canada that Trump has started what could escalate into tit-for-tat retaliatory measures by other countries, specifically traditional US allies that are members of the G-7, as well as Mexico and China.

During his presidential campaign, Trump severely criticized America’s trading partners and military allies for “ripping off” the US. According to him, the balance of trade tilted heavily in favor of other countries, because of subsidies and currency manipulation, and the US had been footing too much of the bill for the security alliances with Western Europe.

Trump also attacked China for unfair trade practices that gave China a huge trade balance over the US. In truth, in America one has to dig deep into a display of consumer products to find the ones that are “made in USA” and not made in China.

American industries have bristled at this trade imbalance, even while US consumers have benefited from cheap Chinese-made goods.

Over two months ago, Trump announced that he would unilaterally impose tariffs on steel and aluminum exports to the US. When this set off loud protests from America’s trading partners, Trump backed off and declared that Canada and Mexico had been granted a “temporary reprieve” from the tariffs. But after the G-7 summit, Trump announced the lifting of the reprieve and the imposition of a 25% duty on steel and a 10% duty on aluminum imports into the US.

Canada is the biggest steel exporter to the US, accounting for some 17% of American steel imports. South Korea, Mexico, Brazil and China are also major exporters to the US. But what is more telling is that nearly 90% of Canada’s steel and aluminum production go to the US.

And yet the US also exports steel and aluminum to Canada and enjoys a trade surplus of $2 billion. According to Trudeau, Canada buys more steel from the US than any country in the world and half of US steel exports go to Canada.

One of the reasons given by Trump for the stiff tariffs is that Canada poses a “security threat to the United States.” In this regard, Trump made the historically inaccurate claim that the Canadians had burned the White House during the revolutionary war (in fact, the British did).

Said Trudeau, “That Canada could be considered a national security threat to the United States is inconceivable.” Trudeau pointed out the many wars and international conflicts where Canada and the US have fought side by side.

He added, “These tariffs are an affront to the long-standing security partnership between Canada and the United States and, in particular, an affront to the thousands of Canadians who have fought and died alongside their American comrades in arms.”

Having said that, Trudeau announced some $16.6 billion in retaliatory tariffs to be imposed on American steel and aluminum exports to Canada, along with a list of US-made consumer and durable goods. According to him, his government has made sure that the products in the list can be substituted with those made in Canada or imported from other trade friendly countries, so as not to negatively affect Canadian consumers.

At a press conference after the G-7 summit, while Trump was meeting with North Korea’s Kim Jong Un, Trudeau declared:

“It would be with regret, but it would be with absolute certainty and firmness that we move forward with retaliatory measures on July 1st, applying equivalent tariffs to the ones that the Americans have unjustly applied to us. I have made it very clear to the president that it is not something we relish doing but it is something we absolutely will do, because Canadians are polite and reasonable, but we also will not be pushed around.”

For Trump, those were fighting words. He immediately responded by calling Trudeau “dishonest” and by pledging to “punish the people of Canada.”

The rhetoric was even more strident from Trump’s chorus line, with economic and trade advisers Larry Kudlow and Peter Navarro hurling personal insults at Trudeau on network television. Navarro went as far as to declare that “there is a special place in hell” for people like Trudeau.

This prompted senior Republican Senator Orrin Hatch to snap that Navarro should have kept his big mouth shut. Chastened, Navarro apologized.

But the war has just begun.

What are the implications? If the trade war with China also flares up, as well as with Mexico and the European Union, US companies doing business overseas could find themselves losing out to their foreign competitors. European retaliation against the US could hit consumer goods to the tune of $4.4 billion in annual sales, according to analysts.

Trump’s economic advisers have dismissed the fear of increased prices in consumer goods, pointing out that the higher cost of aluminum will be insignificant in the case of a can of Campbell soup. But that argument may not apply in the case of big items like automobiles.

The cost of manufacturing cars in the US could significantly go up. Furthermore, according to one analyst, “Any foreign company that competes with American manufacturers in international markets may benefit. Why? Their business would get a boost if it is targeted primarily at European customers or other countries that retaliate against the U.S.”

On the other hand, while the US steel industry may have a virtual dominance of the US market, it may have to cope with unintended consequences. Already operating at 75% capacity, the steel manufacturers may be unable to meet domestic demand even at 100% capacity – that aside from suffering in the Canadian market where half of US steel and aluminum exports go.

And then there is the underground economy. It is said that when taxes hit the roof, the economy goes underground. During the period of Prohibition, when liquor sales were banned in America, Canada was a major source of smuggled liquor and spirits. These were sold and consumed in illicit bars called speakeasies. Then there is the possibility of smuggled pharmaceuticals. Anything is possible.

In 1995, prize-winning documentarist-satirist Michael Moore wrote, produced and directed the film, Canadian Bacon, a parody on a “war” between Canada and the US.

It started with the US president wanting to revive the cold war with Russia in order to create a crisis that could boost his diminishing public approval rating. But when the Russians decline, the president’s national security adviser exploits a violent brawl over a game of hockey between Canadians and Americans.

The White House aide mounts a media propaganda blitz, ferociously attacking Canada.

Unintentionally, the sheriff of a US city near the border with Canada mistook for this for an actual declaration of war and began to make preparations for battle.

Like all Hollywood films, this one had a happy ending. The misconstrued “war” was averted.
But the trade between the US and other countries is just beginning to heat up – and like any war, the principal casualties will be the civilians, average consumers like ourselves.

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