June 21, 2018
IntelBrief: A Return to the 1930’S?
.On June 20, Cecilia Malmstrom, the Trade Commissioner for the European Union (EU), announced that the EU would impose retaliatory tariffs on €2.8bn of imported U.S. goods as of June 22. These tariffs are in response to the 25% tariffs on imported steel and 10% on aluminum that the Trump administration imposed on May 31, aimed at Canada and the EU, the major suppliers of steel the U.S. imports. In announcing the EU’s counter-tariffs, Commissioner Malmstrom stated that the EU was reluctantly undertaking the action, saying the ‘unilateral and unjustified decision of the U.S. to impose steel and aluminum tariffs on the EU means that we are left with no other choice.’ The EU tariffs are aimed at putting political pressure on President Trump by targeting states such as Kentucky with a tariff on bourbon and Florida with a tariff on orange juice. It is uncertain as to how President Trump will respond to the counter-tariffs, but an escalation in the cycle of economic tit-for-tats is likely to ensue.
Recently, President Trump announced that he might impose an additional $200 billion in tariffs against China—on top of the $50 billion his administration imposed earlier this month. In reaction to the $50 billion in tariffs, China announced a reciprocal $50 billion in tariffs on U.S. goods including cars, beef, and tobacco. President Trump then stated he would not stop at $200 billion; he claimed he could impose an additional $200 billion if China retaliates. The total of those potential tariffs—$450 billion—is close to the total of all goods sold by China to the U.S. in a year: $505.6 billion. Even if only the first threatened $200 billion in tariffs is implemented, it would have a seriously disruptive impact on global trade.
Trump’s decisions are reminiscent of the disastrous U.S. trade policies in the 1930s, which helped exacerbate the Great Depression. Those policies were enacted with the same rationale: protectionism. If the trade wars continue, there are likely to be significant economic consequences and corresponding national security concerns. This, too, is reminiscent of the 1930’s, when the U.S turned inward while threats abroad grew increasingly out of control. The U.S. is distancing itself from its allies in a broad-based manner not seen in modern times.
The current tensions between the U.S. and long-time partners such as the United Kingdom, Canada, and Mexico do not revolve around one contentious issue, as they did over the Iraq War. Rather, the tensions stem from President Trump disparaging the very notion of partnership, collective defense and consensus-based problem-solving. Conventional wisdom—that the security bonds and liaison partnerships between the U.S. and its partners can withstand a tumultuous U.S. administration—still prevails. But what if this level of division continues or even escalates? The U.S. can no longer assume these relationships, and the tangible security benefits they provide both the U.S. and the West, in general, will continue. If the U.S continues to move away from its allies—with respect to trade, the environment, the refugee crisis and global security—as happened in the 1930s, historical evidence would suggest significant domestic and international problems will likely follow.
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