Proclaiming himself to be a “Tariff Man” in a tweet early Tuesday morning, the President sent shivers up the spine of Wall Street. The market’s reaction was swift and severe: The Dow fell nearly 800 points.
Investors are clearly getting the sense that there is no impending armistice in the nascent trade war between Washington and Beijing.
The episode underlines the serious and ongoing risk of an administration run by a man who seems governed by his id rather than deliberate strategy. That’s a bad fit for a global economy that understandably wants to know the rules of the game before making multi-billion dollar investments.
What’s ironic here is that Trump made a hash out of what could have been the start of a healthy correction to the administration’s counterproductive trade policies.
Earlier in the week, markets had been up on news that the United States and China had struck a deal at the G-20 summit in Buenos Aires. The terms are ambiguous, but the basic crux is that China will resume purchases of manufactured goods, liquefied natural gas and agriculture products, which is a relief for struggling farmers who are among the casualties in the tit-for-tat.
In exchange, the United States reportedly agreed to pause for 90 days the ratcheting up of tariffs from 10% to 25% that was scheduled to take effect at the New Year.
At the same time, China agreed take steps during the 90-day reprieve to address a litany of trade policy practices that the United States has complained of. To be clear, these practices represent serious problems, including forced technology transfer, intellectual property abuses and other concerns thoroughly documented in the United States Trade Representative’s March report.
Yet savvy trade policy watchers know that changing these practices will take longer than 90 days, and unilateral tariffs, which will inflict pain on American consumers, will fail to discipline China.
If we really care about fixing this problem, what’s truly needed is something far different from what Trump is delivering: a thoughtful, multilateral multipronged effort that can both soothe market anxieties and address longstanding concerns the right way.
First, the United States needs allies who share similar concerns about China’s trade policy practices. In order to regain the trust of our closest allies, the Trump administration should abandon its costly and ill-conceived steel and aluminum tariffs, which have alienated numerous countries and triggered widespread retaliation against American exports.
Next, the United States should rejoin the Trans-Pacific Partnership, a promising pact agreement with 11 Pacific Rim nations that the President unwisely abandoned shortly after he was inaugurated.
Likewise, the President should jump-start trade negotiations with the European Union, known as the Transatlantic Trade and Investment Partnership, which have been stalled since the Obama administration.
Additionally, with like-minded allies in the EU, Japan and Canada, the United States should file an aggressive and broad-ranging case against China at the World Trade Organization — the proper, and legally required, venue for resolving trade disputes. By forming a large trading bloc committed to high-quality commercial rules, the United States can potentially pressure Beijing to raise its standards.
Finally, rather than prioritizing flashy news headlines of minor trade “deals” — short-term tariff suspensions in exchange for purchases of a small amount of American exports — the Trump administration should begin the hard work of negotiating a formal free-trade and investment agreement with China.
The U.S.-China relationship is the most important geopolitical relationship in the world right now — and increasingly so. Getting it right is crucial to future peace and prosperity around the globe.
If Tariff Man follows this outline, instead of wreaking havoc on the world’s financial markets, he could prove himself to be the superhero we actually need.