By The Washington Post · Tory Newmyer
Trump said he may wait until after the 2020 election to strike a trade agreement with China, saying there is "no deadline" on the talks. "In some ways I like the idea of waiting until after the election for the China deal," he said from London, where he is attending a NATO summit. The comments followed his announcement, via Twitter, that he is restoring tariffs on steel and aluminum imports from Brazil and Argentina. And his administration separately said it is considering new levies on a range of French goods in retaliation for a new digital tax.
The consequences could reach well beyond the metals trade between the United States and its erstwhile South American economic allies and higher prices on French wine and makeup. For one, it signals Trump still views new tariffs as an effective lever to advance his trade agenda, a belief packed with peril for the markets broadly, and manufacturers and retailers in particular, among others.
These are our big takeaways from Trump's announcements:
1. The escalation of trade hostilities marks a serious U-turn by the administration.
Trump's team appeared to be winding down its trade fights in recent weeks, quietly foregoing tariffs on European auto imports, allowing American companies to continue doing business with Chinese telecom giant Huawei, and canceling a tariff hike on Chinese goods planned for October while working toward "phase one" trade deal with Beijing.
But the confrontations the administration just launched could widen trade showdowns in both Asia and Europe.
At issue in France, according to a Washington Post report, is "a 3% tax France introduced last year, which the administration says would unfairly target America's digital economy icons. French lawmakers call the levy 'Les GAFA' - an acronym for Google, Amazon, Facebook and Apple, companies that French officials accuse of paying insufficient taxes on revenue earned in France. . . Administration officials worry that the French tax could set a precedent for other countries. [U.S. Trade Representative Robert] Lighthizer said he may open investigations into similar taxes in Austria, Italy and Turkey." Lighthizer proposed striking back by levying tariffs of up to 100 percent on $2.4 billion of French products, including cheese, porcelain and handbags.
Trump's moves against Brazil and Argentina "took officials in both countries by surprise," the report said.. "In a sign of how abruptly Trump had acted, his own administration was unprepared to provide details."
2. Don't expect a Christmas calm for the markets.
Stock market investors have largely priced in progress toward a trade truce between the United States and China. They have been counting on a deal to scuttle new import levies Trump is set to impose on $160 billion of Chinese goods on Dec. 15 - and they have been betting the president would see it through in part to put the market on sounder footing heading into his reelection campaign.
But the president's renewed fight with Argentina and Brazil throws the assumption into doubt, a fact reflected in a Monday stock market sell-off. The Washington Post reported: "The record bull run of the past month flamed out, with the Dow Jones industrial average declining 268 points, or .95%, to close at 27,783. The Standard & Poor's 500 index dropped 27 points, or .86%, to close at 3,113. The tech-laden Nasdaq composite was hit particularly hard, finishing at 8,567, a 97-point drop of 1.1%."
Chris Krueger of Cowen Washington Research Group said Trump's latest turn points to one of his central conflicts. "The id and ego of Trump (in our opinion) is Dow Man vs. Tariff Man," he wrote in a note. "Tariffs remain Trump's primary trade security blanket and what he reverts to when he feels aggrieved."
3. Trump is turning the trade war into a currency war.
The president, in announcing the renewed metals tariffs, accused Brazil and Argentina of devaluing their currencies to make their exports more competitive. The claim, for which there is no evidence, is "very different from what Trump said in 2018, when he first imposed tariffs on steel and aluminum imports, and it marks the latest unpredictable trade shock from the White House as business leaders are begging for more certainty," The Washington Post reported.
Commerce Secretary Wilbur Ross underlined the wider threat the decision poses in a Fox Business interview. Brazil, he said, is not "the only one where there are currency issues."
From The Post's report: "Now Trump is showing a willingness to impose tariffs for yet another reason: currency moves, opening the door to more action, potentially against China. . . Trump has long railed against China for purposefully devaluing its currency and even promised to label China a "currency manipulator" as soon as he took office (something he eventually did in August 2019). Ross went out of his way on Fox Business to say China appeared to be doing better now. Still, the threat is hanging out there that other nations could be next."
4. Trump promised the trade war would revive manufacturing. It isn't working.
Indeed, manufacturing is in a recession, and it's getting worse. "U.S. factory activity contracted for a fourth straight month in November as new orders slumped back to around their lowest level since 2012, while construction spending fell in October, tempering optimism over the economy that had been
fanned by a recent run of upbeat reports," Reuters' Lucia Mutikani reports.