By Michael O’Neill
American President Theodore (Teddy) Roosevelt described his foreign policy as “speak softly and carry a big stick.” It was September 2, 1901, and he was running for President. He won. As the 25th President of the United States, he practised what he preached, backing foreign policy initiatives with military might. It worked.
A hundred and thirteen years have passed since Teddy Roosevelt ruled the White House. Eighteen more presidents have come and gone. The 45th president is Donald Trump who adopted and updated Mr Roosevelt’s foreign policy. Forget “speak softly;” its now “Tweet loudly” and often, using capitals, exclamation marks and plenty of dot, dot, dots, for emphasis. Mr Roosevelt’s big stick was the US Navy. Mr Trump uses trade tariffs.
He hasn’t been shy in their application, either. Canada, Mexico, European Union, Australia, and China have faced and/or are still facing a barrage of tariffs on such exports as steel, aluminum, solar panels, lumber, paper, and agriculture, and hundreds more.
Donald Trump devoted an entire chapter in his 1987 book “The Art of the Deal” to using leverage in negotiations. His wisdom included “The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can’t do without.”
He has leverage. The US economy is a $21 trillion behemoth, and it is the largest in the world. The International Monetary Fund (IMF) said it is 11.6 times bigger than Canada’s. Mexico and Canada came out second best during the Nafta renegotiation and even after agreeing to a new deal. (US Mexico Canada Agreement on trade) Trump still charges 25% tariffs on Canadian steel and 10% on aluminum imports.
President Trump justifies the Canadian tariffs because Canadian steel and aluminum imports degrade the American industrial base, thereby threatening national security. However, imports of those same metals from Korea, Australia, Argentina, and Brazil do not pose a security concern and are exempt from duties. That suggests other factors are at work.
Then there’s China. President Trump has been at his bellicose best while trying to force the third largest economy on the planet to bend to his will. He has tweeted up a storm. At the end of February, he was touting the “China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay US tariff hikes. Let’s see what happens?”
He found out what happened in a diplomatic cable from Beijing last Friday. China sent their version of the 150-page trade draft agreement which sparked American outrage. They accused China of backtracking on prior commitments.
Perhaps it was just a misunderstanding due to the language barrier. “America demands” may have been translated into Mandarin as “here’s a suggestion”.
Misunderstanding or not, Trump was not impressed. He vented in a tweet “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday.“
He got even angrier on May 8, telling reporters in Florida: “By the way, you see the tariffs we’re doing? Because they broke the deal. They broke the deal,” Trump said Wednesday. “So they’re flying in, the vice premier tomorrow is flying in — good man — but they broke the deal. They can’t do that, so they’ll be paying.”
The Chinese Commerce Ministry responded with a terse “China deeply regrets it and if the US tariffs are implemented, China will have to take necessary countermeasures”,
President Trump may soon discover that the bully tactics he employed with the Nafta renegotiation won’t work with China. America’s share of Canada’s total trade was 61.5%, which gave the American’s, Mr Roosevelt’s “big stick.” With China, his “big stick” is more of the wet noodle variety.
The US is only 19.2% of China’s total trade of $4.6 trillion. (2018 data) China has the means to retaliate to the latest tariff increases. Raising tariffs on US soybeans, devaluing the yuan, or even restricting American access to the country are just a few options.
China may not mind prolonging the negotiations. President Xi Jinping is effectively in his job for life. Mr Trump faces the electorate in less than two years or even sooner if the Democrats have their way and impeach him.
President Trump is threatening to open another war front, this time with the European Union. Trump is proposing higher EU tariffs because of subsidies to aircraft maker Airbus and because of high duties for importing US cars. The EU slaps a 10% duty on US car imports while the US tariff for EU cars is only 2.5%. However, if he goes down that road he will find that the EU to be a formidable opponent.
President Trump’s strategy of leveraging the size of the US economy to improve terms of trade may not be accomplishing its objectives. Trade Partnership Worldwide LLC published a study called “Estimated Impacts of Tariffs on the US Economy and Workers” in February 2019. In a nutshell, their base case was that tariffs are harming, not helping, American’s. The study claims that tariffs on steel, aluminum, and Chinese goods, would end up costing a family of four $767.000 and 934,700 jobs would be lost.
President Trump may soon find out that “tweeting loudly and carrying a big stick may not be enough if your opponents outnumber you and have big sticks of their own.