Coming to grips with Trump’s trade policy

Like Dr Jekyll and Mr Hyde, there are two faces to US President Donald Trump’s trade policy. One is the snarling populist approach that focuses on the interests of “America First.” The other is a more measured acknowledgement that the global trading system can deliver dividends. Both were on display last week.

The week began with the Trump administration slapping steep tariffs on South Korean washing machines and Chinese solar panels under “safeguard” statutes that determined the imports were harming US companies. The announcement provoked headlines that it marked the start of Trump’s long-anticipated protectionist trade war with two of America’s biggest Asian economic partners.

The tough approach reflects the views of Robert Lighthizer, the US Trade Representative and US Commerce Secretary Wilbur Ross as well as the lingering spirit of Steve Bannon.

But the by the end of the week, Trump was wooing the global elite at Davos by channeling the views of Gary Cohn, his national economic advisor who was formerly president of Goldman Sachs.

Trump’s speech at Davos was not much of a departure from the Republican mainstream. He said he believed in free trade, but that it “needs to be fair, and it needs to be reciprocal” and then repeated a line that Cohn made several days earlier that “America first does not mean American alone.” The tone was pragmatic as he described a “rule-based” trading system based on “shared goals.”

Trump even suggested that he would be willing to negotiate a deal with the 11 remaining countries of the Trans-Pacific Partnership after he pulled the US out of the trade pact almost immediately after he took office. Trump made the offer with caveats, however, suggesting that he still favored bilateral deals with each of the TPP members, but would consider group negotiations “if it is in the interests of all.” There appears to be little appetite among the TPP countries to reopen negotiations now that they have agreed on the terms of the revised pact.

Trump may resume a more strident approach on trade when he delivers his State of the Union address on Tuesday. Preparation of the speech is being overseen by Stephen Miller, the president’s senior policy advisor and a strong “America First” proponent. With the crucial mid-term elections coming in November, Trump will be tempted to play to his political base as he wants to be seen as delivering on his campaign promises to get tough with China on trade.

The weeks and months ahead could also see a string of additional trade measures related to steel, aluminum and other products from China.

For the first time since 1991, the US government rather than the private sector initiated in late November an anti-dumping suit, with the target being Chinese aluminum imports. This will set the stage for the US Commerce Department imposing anti-dumping and countervailing duties within the next few months. Ross described the move as showing that “unfair trade practices will not be tolerated.”

In addition, the US in August launched an investigation into Chinese intellectual property and industrial policy. Trump made a reference to this in his Davos speech when he talked about “unfair economic practices,” including “intellectual property theft, industrial subsidies and pervasive state-led economic planning.” US companies have long complained about China forcing them to transfer intellectual property and technology if they want to do business in China.

The investigation findings are expected to be released soon and would allow the US to impose harsh trade penalties, including import limits and additional tariffs on such Chinese products as steel, furniture, auto parts and electronics.

Finally, the US recently finished examining the national security implications of US dependence on Chinese steel and aluminum imports, which would also allow Trump to impose quotas or tariffs within the next three months.

National security considerations are also being used to limit Chinese investment in the US, including the blocking in early January of a proposed $1.2 billion takeover of MoneyGram International, a payments provider, by China’s Ant Financial, which is controlled by Alibaba founder Jack Ma.

More intense scrutiny of Chinese investments could come if the Committee on Foreign Investment in the United States, a government agency, is given new powers to impose or redefine investment restrictions by the US Congress this year.

These threatened trade penalties are taking place against the backdrop of the recently released National Security Strategy that emphasized the importance of trade in foreign policy and labeled China as a “competitor” and a “revisionist power” in challenging the American world order.

Punishing China on trade issues could have wider implications as the Trump administration grapples with its biggest foreign policy challenge — North Korea. Until now, Trump appeared to have delayed imposing trade penalties against China in return for Beijing’s support in implementing international economic sanctions against Pyongyang over its nuclear weapons program.

But China has resisted so far US pressure to take the more drastic step of sharply reducing oil supplies to North Korea out of fear that it could destabilize the country and lead to its collapse, triggering a refugee crisis in the process.

Trump may wield the threat of a trade war with China to force Beijing to comply with an oil boycott. But if China refuses, Trump might well proceed with the new round of trade measures that would bode ill for cooperation with Beijing on a range of strategic issues in East Asia, including not only North Korea but the South China Sea and Taiwan.