Just when the markets thought it was safe, Trump’s new trade war threat could trigger ‘economic and diplomatic destruction’

Donald Trump

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Donald Trump
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  • President Donald Trump said the US is considering trade restrictions on imports cars, trucks, and other vehicles.
  • According to reports, Trump is thinking of slapping a 25% tariff on imported vehicles.
  • Trade experts say the move could lead to an economic disaster for the US and lead to retaliation from key allies.

President Donald Trump’s unexpected announcement that the US would consider tariffs on imports of foreign vehicles has raised red flags among trade experts and prompted new fears of a trade war with some of America’s closest allies.

Trump said he would direct the Commerce Department to look into imposing trade restrictions imports of cars, trucks, and other vehicles. The investigation, to be conducted under Section 232 of the Trade Expansion Act, would look into whether imported cars posed a national security threat to the US.

Section 232 is the same method the US used to impose tariffs on steel and aluminum imports.

Despite the national security justification, most analysts viewed the move as a tactic for Trump to get tough in trade negotiations.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said Trump’s latest move represented a compulsive response to trade negotiation that have so far proven difficult.

“After the steel & aluminum high, Trump is now addicted to tariffs,” Bown tweeted. “He is clearly abusing this national security law simply to get his tariff fix. And this law is the easiest access he has found.”

And while the investigation will look into imports from countries around the globe, Greg Valliere, chief global strategist at Horizon Investments, surmised that Trump was really trying to send a message to the other two members of the North American Free Trade Agreement, or NAFTA.

The renegotiations of that major trade agreement have hit hiccups in recent weeks, and it now looks unable to pass Congress this year.

“Increasingly frustrated by stalled NAFTA talks, President Trump’s attempt to raise auto tariffs may be tactic to drive Canada and Mexico (especially the latter) to compromises,” Valliere said. “The US wants Mexico to impose much higher auto wages in an effort to level the playing field, even though trade experts agree that forcing Mexico to set wages has virtually no chance of happening.”

Trade experts agreed that Trump’s tactic would likely provoke retaliation from key trade allies and could do major damage to the economy.

“Trump’s trade tactics are sheer wanton economic and diplomatic destruction,” Benn Steil, the director of international economics at the Council on Foreign Relations, tweeted Thursday.

Japan – the US’s third-largest source of imported vehicles – wasted no time in condemning the potential measures.

“If, only if, this measure were to be launched, it would be an extremely broad trade restriction measure,” Trade Minister Hiroshige Seko told reporters. “Such restrictive measures would plunge the world market into turmoil.”

China, which is currently embroiled in a trade fight with the US on multiple fronts, also blasted Trump.

“China opposes the abuse of national security clauses, which will seriously damage multilateral trade systems and disrupt normal international trade order,” Gao Feng, a spokesperson for the Chinese Ministry of Commerce said.

China announced Tuesday that it was lowering its own tariffs on cars to 15% from 25%. The country is the 10-largest source of imported vehicles in the US.

Valliere said Trump’s auto threat could backfire and leave the US isolated.

“If anything, this auto tariff tactic could stiffen the resolve of Mexico and Canada to hold out for a better NAFTA deal, which now has slim prospects of final approval this year – with increased chances of a complete breakdown in talks,” Valliere wrote. “This proposal will further sour relations between the U.S. and major auto-producing allies such as Germany, Japan and South Korea.”