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Supply Chain Risk

Trump trade wins don’t eliminate the threat of more tariffs

President Trump racked up wins on his two main trade policy goals this week, but he may not be done starting trade disputes in the near future for two reasons: The deal with China could still unravel, and he is even more likely to use tariffs for political purposes now that he’s had success doing so.

“Donald Trump will probably still use the China trade war card if he thinks he needs to this election year,” said Raul Hinojosa-Ojeda, a UCLA professor who specializes in trade and a former visiting scholar at the World Bank. “He thinks it helps him politically to look tough in front of China.”

Peter Navarro, Trump’s top trade policy adviser, summed up the administration’s thinking in a Wall Street Journal op-ed Wednesday: The president had made tariffs into a useful political tool. “Here’s an equally important consideration, this one regarding strategy: President Trump’s imposition of actual tariffs has made the threat of tariffs more credible, and a variety of Trump tariff threats have borne robust results,” he wrote.

Trump on Wednesday signed a “phase one” trade deal with Beijing that addresses most of the administration’s top agenda items. The following day, the Senate approved the United States-Mexico-Canada-Agreement, which replaces the 1993 North American Free Trade Agreement, sending it to Trump’s desk. The wins effectively clear the two biggest trade issues from Trump’s agenda, raising the possibility that 2020 will not feature major trade war developments, after years of uncertainty.

However, the China deal will require close monitoring to ensure that China is complying with its requirements. Beijing has failed to live up to agreements with previous administrations. The additional tariffs on Chinese goods the Trump administration had threatened before the deal were only suspended, not eliminated. “They could be started up at any moment,” said Hinojosa-Ojeda.

Trump’s main goal with the “phase one” agreement was to shrink the trade deficit and get China to start buying U.S. goods, said Derek Scissors, resident scholar at the conservative American Enterprise Institute, so he’ll act if the Beijing tries to back away from those aspects of the deal. “Phase one” calls for Beijing to buy $200 billion in U.S. goods and services over two years, including $40 billion-$50 billion in U.S. farm goods.

“It would be risky for [China] to backtrack on promised purchases before the election, because the president will just apply more tariffs,” Scissors said.

Meanwhile, Trump faces several other disputes in which he is pursuing tariffs or could either impose new levies or ratchet existing taxes up. The administration is embroiled in a fight with the European Union over airline industry subsidies and has proposed tariffs of 10% to as high as 100% on $7.5 billion on EU goods. It has proposed tariffs of up to 100% on $2.4 billion worth of French products in retaliation for its proposed digital services tax on tech companies like Facebook and Amazon. European Trade Commissioner Phil Hogan met with Trump administration officials this week, but no agreement was reported. And the administration’s earlier threat to impose tariffs on autos and auto parts, while seemingly on the back burner, has not been withdrawn.

Trump has also shown a willingness to apply tariffs in non-trade-related matters, using them last year to push Mexico to crack down on Central American refugees crossing its borders into the U.S.

Ryan Young, a trade policy expert with the libertarian Competitive Enterprise Institute, nevertheless sees the threat of renewed trade wars as low for the foreseeable future. The administration has an interest in not stirring things up too much before the fall elections, he said. “Of course, with this administration, things can change with a single tweet,” he said.

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