Trump opens a new way in trade wars

American Foreign Policy said that President Donald Trump will try – by applying a new currency rule – to repair the damage caused by the tariff imposed by him, but he might end up causing more devastation resulting from his protectionist trade policies.

The magazine holds that – besides using customs duties to wage trade wars – Trump has always been obsessed with the idea that foreign countries are cheating against the United States by artificially reducing the exchange rates of their national currencies.

Trump has now succeeded in uniting these “two obsessions” into a new base that poses a potential danger that could spark more trade tensions and, possibly, further disturb relations with China, Japan, and the European Union.

According to Foreign Policy, the Ministry of Commerce this week put the final touches on a new rule that allows Washington to impose fees on countries that it believes are underestimating the value of their currencies, which in theory makes their exports less expensive and gives them a preferential advantage in competing with American-made goods.

The new rule will enable the imposition of countervailing duties in the United States, usually earmarked for use against certain imports if they are shown to be offered at prices lower than market prices, and will impose import duties from any country that the Department of Commerce decides to reduce the value of the national currency.

The Foreign Policy report refers to a statement by Commerce Secretary Wilbur Ross that “the new rule constitutes an important step to ensure that unfair trade practices are corrected.”

The report added that sectors exposed to trade wars, such as agriculture and manufacturing, are used to abandon employment and declare bankruptcy. For farmers who lost their largest export market due to the trade war with China, Trump was forced to pay tens of billions of dollars to compensate them.

Despite Chinese promises to order large agricultural purchases, it is not yet time for these export markets to get back to where they were.

The report pointed out that during the past month alone, the administration suddenly expanded the tariff on imported steel to include steel products because imports with higher prices than raw steel make goods using steel more expensive (and therefore less competitive) for manufacturers in the United States.

According to the American magazine, the steel and aluminum tariffs have cost the industry sector a loss of 75,000 jobs.

These new “cascading tariffs” implicitly acknowledge that steel tariffs – as expected – have caused a lot of pain, but have provided little benefit to American companies.

The report stated that in January, despite overall growth in employment statistics, 12,000 jobs in the manufacturing sector disappeared, underscoring the difficulties Trump is facing in transforming his protectionist policies into a source of jobs in the states he has pledged to help.

And he adds that the “new currency base” heralds a new face to an old problem that is part of Trump’s manufacturing. For decades, politicians and policymakers in Washington have been concerned about countries that are gaining export advantage thanks to their seemingly undervalued currencies compared to the US dollar.

In the 1980s, Japan used the relatively low-valued yen to become a huge export power, and two decades later, China used the cheap yuan to do the same.

Either way and at the expense of some American industries, this has benefited American consumers. Senator Chuck Schumer, a Democrat from New York, has tried for many years to pass a similar currency law through Congress.

Will the new rule fail? According to the magazine’s report, the idea was not successful for two reasons: It is very difficult to determine whether any particular currency has depreciated less than its value and amount, as most of it is freely traded in the market and subject to fluctuations for all kinds of reasons, and American law imposes that compensatory fees and tariffs on Artificial cheap imports should be limited to goods that benefit from specific government support, not just cheap currency.

But – as economists knew sixty years ago – there is a greater irony in Trump’s campaign against what he feels is undervalued in foreign currencies, such as the yuan, euro or yen.

If the dollar is stronger against these currencies these days, it is partly due to its trade policies, especially tariffs.

As for the tariff – as Trump applied to foreign steel, aluminum, solar panels, washing machines, and most goods from China – it raises commodity prices to American consumers.

And if a lot of people are unemployed and a lot of factories do not work, then tariffs may only stimulate more domestic production and achieve some benefits, but this is not the case in the United States today, where unemployment levels have been low throughout the history of the country.

Source: Foreign Policy

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